Crude Oil Technical Preview for 27th January

Next stop for Crude Oil: $41.50

Last few week’s price action in Crude Oil gave a glimmer of hope but failure to close above $49.69 saw Crude oil futures turn lower albeit still near the previous lows of $44.76. A break below this low, which previously saw a bounce back to as high as $50 will see Crude Oil futures decline even lower, sliding towards $41.50.

Fundamentally, there have been no new developments. While Crude Oil tried to stage a rally ahead of last week’s European Central Bank’s Quantitative Easing announcement, the failure to keep up on the momentum has shown the bears overwhelming the bulls.

While in the US, the Oil rig count continues to drop, putting more pressure on the Shale oil producers, a change in dynamics was also at play from Saudi Arabia. With the passing away of King Abdullah of Saudi Arabia, the bulls were back in the game, with speculation that the heir to the throne would potentially look towards changing the policies of OPEC.

The Crown Prince, Salman Bin Abdulaziz however was quick to thwart any further speculation as he expressed his desire to continue on with the policies from the previous ruler. Crude oil promptly settled back below the $49 handle with the bearish momentum expected to continue.

Crude Oil Technical Analysis

Technically, any meaningful rally in Crude Oil seems to be getting weaker and weaker at least until the major target of $41.69 ($41.50) is reached. This could potentially set the stage for either a renewed decline lower targeting as much as $30, or we could start to see some consolidation taking place before Crude Oil continues to start its correction to this rapid decline since July last year.

 

The daily charts for Crude Oil shows the price action in relation to the longer term target of $41.50, with a major support/resistance level near $55.35. So a failure to retrace to this level could see a possible decline towards $41.50 before we can expect to see any kind of a corrective rally back to $55.35. Besides the aspect of OPEC, the US Dollar Index is also like to weigh in to the equation as the Federal Reserve meets for its monthly monetary policy meeting. Expectations are high for a June rate hike, which will continue to keep the US Dollar poised to push higher. However, a change or even a hint of doubt in the markets about the rate hike in light of falling crude oil prices and a strong dollar, could potentially weaken the Greenback, giving some support to the declines in Crude Oil.