Crude Oil prices fell heavily once again yesterday, as the commodity lurched lower, adding further momentum to the negative sentiment for oil, which has now fallen steadily throughout July and August, with the December WTI contract closing at $92.86 per barrel on the day. Yesterday’s price action ended with a wide spread down candle once again, holding below the potential level of support in the $94.50 per barrel area which was breached on Friday. This was tested yesterday in early trading from below, but duly held firm. This is shown with the blue dotted line which has now become resistance. The level of price congestion is also clearly defined on the volume at price histogram to the left of the oil chart, and given this depth of resistance now overhead, any short term recovery is likely to struggle at this region. What is perhaps more interesting from the last few days, is the associated futures volumes, particularly those of Friday and Monday, with rising volumes in a falling market, confirming the bearish sentiment for oil, with the futures trading lower once again in early trading on Globex this morning at $92.91 per barrel.
While the technical picture for oil is weak, the fundamentals are also adding their own downwards pressure, with oversupply issues still depressing the market. In addition, yesterday’s firm move higher for the US dollar, which now appears to be breaking out of a recent congestion phase, is also acting as a catalyst for the commodity. Finally, today sees the weekly release of oil inventories at Cushing, and given the glut of oil at present, it will be interesting to see if the draw in inventories of -1.3mbbls being forecast is met, reversing last week’s build of 1.4mbbls. If the forecast is indeed met or exceeded, expect to see a bounce higher in the price of oil today. However, for the short to medium term expect to see further declines in due course, with a possible longer term move down to test the $89.80 per barrel level – assuming as always there are no global shocks!!