Crude Oil – Weekly Analysis, 13/11

Crude Oil futures decline sharply on a massive inventory build up

WTI Crude Oil futures fell -3.49% for the day yesterday with prices posting a 10-week low at $41.26 a barrel. Crude Oil remained bearish for the most of this week, in total losing -6.13% on a second consecutive week of declines. The strong declines in Crude Oil came as the US weekly Crude oil inventories report showed a massive build up in stockpiles, nearly 4 times above the median estimates of 0.8 million at 4.2 million barrels.

Our readers would not be surprised by the declines as we pointed out in an earlier article on Crude oil that prices are likely to test the lows near $35 – $36 before we can expect to see any reasonable recovery in prices.

The strong build up in the inventories saw prices dive alongside an OPEC forecast which said that keeping the production at current levels would see supplies being boosted by nearly half a million barrels of Crude oil by next year. Over the past week there has been an increasingly strong rhetoric from various OPEC and non-OPEC members talking about cutting down on production. While arguments went back and forth, the markets for the moment are confined to the reality that production will continue to outstrip demand. OPEC producing nations, mostly Saudi Arabia expects that any production cuts should come from the Shale industry. The status quo remains as OPEC continues with its game plan to keep production high in a bid to squeeze out the more expensive shale oil producers.

Crude Oil Technical Analysis

On a weekly basis, Crude Oil touched the 2009 lower close this week at $41.60. A break below this key price level will open the longer term decline to $35.11, marking the December 2008 lows.

On the daily charts, Crude Oil managed to find support first near 44.28 through 43.40 and made a quick recovery to previous resistance at 48.04, noted in last week’s analysis. The sharp decline from there saw prices closing near 41.60 yesterday. The support is likely to hold for the short term on the basis of the confluence of the lower trend line of the price channel and strong support here. A bounce to 43.40 – 44.28 is very likely in order to establish resistance here. If successful, we break down below the trend line could see Crude Oil futures post further declines down to 38.92.

Prices are likely to remain range bound within the support/resistance levels in the coming weeks as a break down below 41.60 is more significant if led by strong momentum, preferably a fundamentally driven catalyst. The US Dollar index continues to hover near the highs but has shown a decline in the momentum, leading the validation that Crude Oil looks to have formed a short term bottom as prices attempt to test the upper resistance level.