Crude Oil – Weekly Analysis, 29/10

Oct 29 2015, 6:36 am
Crude oil analysis

Crude oil futures poised for a pullback after gaining over 6% yesterday

Crude oil prices saw a bullish day yesterday with prices gaining with over 6% gains for the day. WTI Crude oil futures settled at $46.14 yesterday as two separate reports helped pushed prices higher. The API reports showed that production was starting to decline on account of lower prices and has put pressure on the high cost producers of Oil such as Shale. While the markets speculated the potential cooperation between Russia and Saudi Arabia to cut down on production, the bets were scaled back ruling out the likelihood of any such cooperative measures to come to fruition between the two Oil producing giants. The weekly American petroleum institute’s report showed an inventory surplus of 4.1 million barrels for a third week in a row. However, Crude oil ignored the weekly EIA Crude oil inventories report which showed that commercial crude oil inventories increased 3.4 million barrels, while missing estimates of 3.7 million barrels and also down from 8 million barrels in surplus from a week ago.

Crude Oil Technical Analysis

The reversal off Tuesday’s (October 27th) low at $42.58 saw prices surge strongly yesterday falling short of testing the key level of $46.57 from the daily chart which could have marked a retest of the break out level. While not ruling out further gains to $46.57 Crude oil remains biased to the downside in the longer haul with a potential test back to previous lows of $38.92.

Crude Oil Weekly Chart, 29/10 (Ascending Wedge Break out)
Crude Oil Weekly Chart, 29/10 (Ascending Wedge Break out)

On the 4-hour intraday session, Crude oil has managed to clear the support near 44.85 through 44.26 after breaking out off the steep falling wedge pattern near $43.80. A retest back to the broken support is quite a possibility. If support holds at this level Crude Oil could test the next resistance at $46.57 in the near term. The Stochastics oscillator on the 4-hour chart points to a bearish divergence in play which could inevitably see Crude oil retrace yesterday’s gains.

Crude OiI – H4 Chart, 22/10
Crude OiI – H4 Chart, 22/10

The price action in WTI Crude oil is likely to see prices stay range bound and any hopes of a rally could likely happen after a potential test back to the previous lows. In terms of economic fundamentals, the US GDP report is due out today. A weak print is likely to point to the fact that the global crude oil demand remains subdued while on the other hand, production remains elevated. The US Dollar’s appreciation yesterday is another factor to consider in light of renewed bets on a December rate hike which could keep the Greenback well supported and in turn put downward pressure on Crude Oil prices.

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John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.

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