Crude Oil continues to post steady decline. Bullish bets decrease

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Crude oil prices continued to extend the declines since last week as crude oil futures gave up the gains following the massive drawdown in oil inventories a week ago. Oil futures contract for October delivery closed at $43.62 a barrel yesterday as the markets failed to react to the latest inventory data from the EIA.

Oil traders were bearish entering into this week with the weekly CFTC’s Commitment of Traders report showing that speculative short positions increased significantly, while long positions decreased. Overall, net long positions in crude oil futures fell by 19%. The decrease in the long positions came during the week where Russia and Saudi Arabia officials were seen looking at stabilizing oil prices. Still, failure to come up with any clear measures saw oil investors calling the bluff.

Michael D. Cohen, an analyst at Barclays PLC, said, “The more they talk, the less people listen. If you look at the actual statements from the Saudis, there’s not a lot of enthusiasm. They’re saying that either they don’t believe a substantial intervention is needed right now or that if other producers want a freeze, they’ll go along.”

Oil inventories fell only 0.6 million barrels

Official data showed that US Crude oil inventories for the week ending September 9, 2016, decreased by 0.6 million barrels from the previous week, to 510.8 million barrels. Gasoline production fell, averaging around 9.9 million barrels a day while distillate fuel production also fell averaging 4.9 million barrels. The report was in contrast to an earlier inventory report from the American Petroleum Institute. The API’s oil inventory data released on Tuesday, September 13, 2016, showed that oil inventories posted a buildup of 1.4 million. Both the inventory reports were mediocre which comes right after the previous week’s data showing the biggest drawdown on inventory in the recent decades.

IEA forecasts drop in investment and upstream Capex

Oil prices were also hit by weaker forecasts. IEA released a report noting that it expects global investment in the energy sector fell by over 8% last year with the drop in investment coming in the fossil fuels sector where investment is suspected to have decreased by $200 million. The IEA’s report also showed that upstream capital expenditure is expected to be down 24% this year, which follows last year’s decline of 25% in capex.

Mind the support!

Crude oil futures are currently trading a few points above the $43.50 handle, which incidentally marks a strong support level, from where prices previously bounced off around early September. From a weekly outlook, the chart still shows the potential inverse head and shoulders pattern playing out but with price nearing the $43.50 – $43.00 support zone, the right shoulder in the pattern could be at risk for a stronger decline, which could potentially put the pattern at risk.

Crude Oil (Rolling contract) – Price consolidating near the right shoulder
Crude Oil (Rolling contract) – Price consolidating near the right shoulder

On the 4-hour chart time frame, crude oil prices could remain consolidating near the $43.50 – $43.00 support zone, with the possibility of a near-term rebound off this level. In this case, the price will need to breakout above the potential resistance at $45.00 handle. A breakout above this level could see oil prices look towards regaining the losses for a retest to 47.00 – 47.50.

Crude Oil Futures Contract (CL_6V): Price at support zone of 43.00 – 43.50
Crude Oil Futures Contract (CL_6V): Price at support zone of 43.00 – 43.50

In the longer term, oil prices remain flat with next week’s FOMC meeting and the Algeria summit the week after likely to help break the oil market out of its range.

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