Crude Oil Technical Preview for 7th January 2015

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Crude Oil

Crude Oil starts the year on a bearish note, eyeing $41.7

There seems to be no respite for Crude Oil futures which continued to weaken into the New Year and breaking below the $50 handle over the past few weeks and now firmly poised to dip down to the next major support level of $41.69 (or $41.7). Crude Oil continues to be pressured by the global supply glut, rising US Dollar and slowing demand.

Over the holiday period, the US Department of Commerce took a decision to lift decades old ban on exporting domestically produced Crude oil, allowing companies to export certain varieties of the ultra-light crude oil or condensate.

Although the new decision will not impact the Oil market much, the lift on the ban is being seen as a welcome move by some oil companies in the US, shifting the sentiment from a mass consumer of Oil to a potentially significant oil exporter.

Meanwhile Saudi Arabia continues to make news in the world of Oil as reports showed that the Oil rich kingdom cut prices for February deliveries to Europe and Asia while raising prices for its Asian clients. The fresh drop in price for the US markets makes for a fifth consecutive price cut and could likely put more pressure on US shale oil producers, but analysts shrugged off the price cut deeming it as a way to gain back the market share in the US considering the larger options available as well as the different sources available for the US markets.

The fall in Crude oil prices has not only affected all concerned countries but also has put significant pressure on inflation in most economies with the latest being the Eurozone where it is becoming convincingly clear that the fall in Crude oil prices could simply accelerate the risk of deflation, which as we have seen this week saw countries such as Spain posting negative inflation, while Germany initial CPI estimates posting flat growth.

While inflation has been a big talking point, GDP data on the other hand should offer some consolation, considering that lower fuel prices tends to lead to more consumer spending.  Given that Crude oil prices sold off sharply during the fourth quarter of last year, it will be interesting to watch how much of the fall in prices has helped countries to boost their GDP growth during Q4 of 2014.

Crude Oil Technical Perspective

Crude Oil

The above monthly chart for Crude Oil basically gives the bigger picture. After prices broke through the major trend line and the subsequent rallies being capped near the 104 region, prices simply declined sharply from a technical perspective. The next major support as shown on the chart comes in at $41.69 level, which is potentially where we could expect prices to stabilize, perhaps even move in a corrective rally higher

Crude Oil

 

The weekly chart above shows the support and resistance levels; which potentially puts a corrective rally back towards the 78 – 80 region, which however at this point looks a bit hard to believe. Given the way things are, Crude oil continues to remain a sell, targeting the major support at $41.7, at least until the fundamentals show a shift of sentiment, which seems to be a bit farfetched at the moment.

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