Congestion at these prices
This week crude prices have stayed under pressure but haven’t gone anywhere very fast. We seem to be seeing sellers still in control but the oversold nature of the market is keeping new major lows still something to look forward to. This week we have seen new lows but we haven’t been able to close the market at those prices. We felt that we should have been seeing the market gain on price this week just from traders wanting to take profits on their short positions but the gains have been very week so far. As of right now pressure is still on but we are in a congestion zone between 95 and 93 dollars a barrel. Going forward we will need to see a strong close below 92 before we can think about getting any lower in the short term. The odds are in the favor of the bull right now, the market is severely oversold, EIA inventory numbers have been getting bullish and usage at these levels will remain very good.
Weekly vs Daily
Most of the time we tend to look at only the daily price movements of anything in particular but taking a look at a weekly chart shows some interesting numbers to pay attention to.
The weekly chart also shows some congestion at these levels but it also shows us significant support where we are right now. If you take a look at the weekly chart provided you can see a major trend line of support starting from July. The way the chart looks now suggests that if we can break prices below 92 dollars and trade there (that is important) we then would see the 95-93 dollar area to be significant resistance to prices going higher. That would open up trade to test the 90-85 level.
To me it’s too quick to see trade that low as of yet but that could be a possibility soon. If we see this price level we are at now hold then you can be looking to the 98-100 dollar level to trade before we see the fundamentals of crude oil begin to change.
This week’s movements in the crude market haven’t told us much yet but they are about to tip their hand at where we should see prices go next. In the futures markets congestion usually leads to a breakout in some direction with a good amount of force behind the trade. Right now we are really looking at two major spots for crude to go. Either we go to the upside where somewhere around the 100 mark should prove as significant resistance or we go down even more to test the 90-85 dollar range. As we stated before, the weekly chart is showing that crude is very over done with this move and we should be able to bounce over the next couple weeks depending on fundamental news.
I would imagine that reading EIA reports is not your idea of a fun time, but this weeks trading was. The report came out a day late (Thursday) because of the government holiday Monday. The report didn’t seem that interesting, we had a rise in crude inventories of +2.64M barrels and gasoline stocks were down 840k barrels vs an expected -1M drawdown.
BUT when the numbers did come out we saw a very fast crude market lose 50 cents then go straight up from there gaining almost 2 dollars a barrel without batting an eye. Now we still had a fairly bearish report overall but traders are seeing that we need much more bearish reports to really take the market down more in the short term. This again is showing the crude market oversold and prices needing to rally over the next week or two to get back into a normal trading market.
Watch out for a choppy market. Unless some new bullish data comes out the market wont be wanting to go straight to 100 but we also shouldn’t see new major lows come in just yet either. But don’t expect to be bored, the energies markets are almost never quiet. Texas and North Dakota are still able to make money at these levels and production numbers should continue to beat estimates, remember Texas oil drillers need about $50 a barrel to break even where North Dakota needs about $60-65. That black gold is going to continue to flow.
EIA numbers for this week – +2.64 Million barrels of Crude Oil Inventories
-840k barrels of Gasoline Inventories