It was a day of muted trading for oil yesterday, with both the US and Canada observing a public holiday in honor of their war veterans. As a result, the Wednesday oil inventories report is now scheduled for Thursday.
For crude oil, it is the supply and demand equation which continues to dominate and drive the price, with the technical picture confirming this heavily bearish sentiment. In the last few days, OPEC, along with the Kuwait and UAE oil ministers have confirmed they continue to remain relaxed about the decline in the price of oil, which is being driven ever lower by the glut of supply currently in the market.
In addition, and adding further to the negative outlook, the US EIA, the IEA and OPEC are all due to release their monthly supply and demand forecasts, with all three looking likely to confirm a continuation of further weak demand. This trend of oversupply is also one that has been strongly reflected in the weekly oil inventories, with the last four weeks having all reported a big build in supply at the Cushing hub, albeit declining from the massive build of 8.9m bbls seen in mid October. Even if we do see a reversal of this sentiment on the weekly data, this is unlikely to change the current market sentiment given the weak economic outlook globally and coupled with over-supply worldwide.
From a technical perspective, this is simply confirming the heavily bearish outlook for oil prices at present. Following the move through the $79.50 support region, the commodity has lapsed into a further phase of price congestion, trading between $76 per barrel to the downside and the $79.70 per barrel to the upside. The weak picture was further confirmed on Monday with the attempt to move higher failing to follow through, and closing with a narrow spread up candle with a deep upper wick on above average volume.
The rally of the 5th November also ran into the same area of resistance, this time on high volume, signalling further weakness. Given the current picture both fundamentally and technically, oil prices look set to continue lower in the short term, and any move through the $76 per barrel area is then likely to open the way to a deeper move down, to test the next level of support in the $74.55 per barrel area, last seen in July 2013.