Crude Oil prices have been on a tear this month. Yesterday in New York, Crude Oil fell more than 4%, the biggest one-day percentage decline in seven months. Since then, however, it has already managed to regain at least half of its losses, mainly on signs that U.S. fuel stockpiles are shrinking and speculation that China’s economy will continue to drive oil demand.
At the moment Crude Oil is trading around $80.75 per barrel. Now, a couple of hours ahead of the U.S. Oil Inventories Report we will focus on two major drivers of instability in Oil prices for the last month, the U.S. and China.
The U.S. Energy Department may report today that gasoline stockpiles fell 1.5 million barrels last week. With China, things are, as usual, a bit more complicated. Recently China surprised markets by raising interest rates for the first time in nearly three years, but as time passed by, concern eased that an unexpected rate increase by China’s central bank will harm fuel consumption in the world’s largest energy user.
China has been the main driver of oil demand growth so far this year, although it still uses far less than the top consumer, the United States. It’s also expected to raise retail fuel prices effective Thursday. China’s demand for oil remains strong and their interest rate hike does not prove to be of a magnitude that would change or harm fuel consumption. On the contrary, analysts even speculate that China’s net Crude Oil imports may reach 310 million metric tons just 5 years from now. That is indeed a ‘vote of confidence’ that can take Oil prices to new highs.
The U.S. is also not dragging behind. Fuel demand in the States is also rebounding from last year’s slump. U.S. gasoline demand rose 2.7% last week, the largest week-to-week jump since May 28. Oil also gained support from a weak dollar, which dipped against a basket of currencies. A falling dollar makes oil and other dollar-denominated commodities cheaper for holders of other currencies.
Therefore, traders may firmly speculate that if indeed today’s U.S. Oil Inventories report will meet expectations, there might be quite a sharp jump in Oil prices.
Oil Under Sell Pressure but Technicals Suggest Upturn Impending
The price of Crude Oil has recently entered a mild bearish channel following its sharp upward spike a few days ago. On the technical side, we can see what appear to be parallel trend lines, with a clear median line between them.
With a price just under $81 a barrel, the price of oil is beginning to come under pressure from faltering economies in Europe, as well as a dampening of value from a rapidly appreciating USD.
Looking at our chart below, we can see our relevant support and resistance levels (marked as S# and R#, respectively). The way our indicators currently look gives one the impression that there may still be room for the current trend to continue.
Our MACD shows a descending pattern that is preparing to enter the over-sold region (below the 0 line marked in red). Our Stochastic (slow) reveals a similar pattern. This suggests that pressure remains downward, but that an upturn may be in the making.
Our next major support level (S1) rests at $79.50 a barrel, and signals indicate we could see the price turn towards that mark after touching R1 at $81.50. But it seems to be that a bullish cross will be forming on both of our indicators and will therefore suggest an upturn is impending, with a target near R2 at $83.50 a barrel.
Crude Oil – 8-Hour Chart
