Crude Oil breaks range, supported above $44.48
Crude oil prices showed the bullish momentum building up with prices staging a strong rally earlier this week ahead of the weekly crude oil inventories report. Data released by the EIA showed a larger than expected build up on stockpiles which increased 3.1 million barrels against estimates of an increase of 2.2 million barrels. The larger than expected build up in prices saw WTI Crude oil give up some of its gains as the commodity declined from the weekly highs near $49.65 to trade at 47.92. However, with the prices breaking out from the ranging price action seen for the past five weeks, we can expect to see further upside momentum build up. For the week, Crude oil prices are up by over 5.0% led by a weaker Greenback.
Crude Oil Technical Analysis
On the weekly charts, the current weekly candlestick pattern shows a bullish break out from the range. Prices are however trading near the major trend line and only a weekly close above this trend line could confirm a move to the upside. $49.15 remains a level of resistance that could hold the rally in the near term ahead of the main resistance level near $54 handle. Comparing the price action to the Stochastics, we notice that there is a minor hidden bearish divergence being formed currently, which indicates an eventual test back to $44.48. A successful test of support at 44.48, preferably after a break of the trend line could confirm the bullish bias.
On a fundamental basis, the supply side remains unchanged but there is more pressure as the slowdown from China partly reflects a global slowdown which in turn could see demand for Crude oil fall further. Also adding to the uncertainty is the US Federal Reserve’s uncertainty on hiking interest rates. The markets will see the FOMC meeting minutes today which could reveal more into the decision to keep rates unchanged at the meeting last month. The Greenback has eased back especially after last Friday’s weak NFP print. While Crude oil prices could continue to range sideways, the bias remains to the upside as long as prices are supported above the $44.48 handle.
In terms of the economic data ahead, the US monthly jobs report is due later this week with expectations for another strong jobs report. While a beat on the estimates could spell bullish for the US Dollar, there could be a possible downside risks as well. We expect Crude oil to remain trading sideways with potentially some outside catalyst that could helps prices break above the initial resistance and eventually push crude oil towards the target of 52.64, which also shows a confluence with the bullish flag’s measured move target.
