Technical Analysis
Nymex Crude Oil (CL)
Despite rebounding to 73.16 last week, there was no clear direction in crude oil yet and it's still staying in established range below 75.0 high. Initial outlook remain neutral this week and the question is still on whether recent price actions from 75.0 is developing into sideway consolidation or a reversal. Note that another rise is mildly in favor as long as 68.02 support holds. Above 73.16 will bring a retest of 75.0 high and break will confirm up trend resumption for 76.77 fibonacci level next. However, break of 68.02 will build up the case that crude oil has indeed topped out at 75.0 and should then bring deeper decline to 65.23 support and below.
In the bigger picture, there is no change in the view that rise from 33.2 is a correction to whole down trend form 147.27. Question remains on whether such rally has completed at 75.0 already and the signals are so far conflicting. On the one hand, crude oil is still trading above medium term rising trending and thus the rally is still intact. On the other hand, crude has clearly lost upside momentum as seen in bearish divergence conditions in daily MACD and RSI. We'll stay neutral and look forward to a breakout from recent range for guidance.
On the downside, note that a break of 67.02 support will indicate that fall from 75.0 is resuming. By that time, the medium term trend line should be taken out firmly and will solidify the case that rise from 33.2 has completed at 75.0. Deeper decline should then be seen in such case to 58.32 support for confirmation. On the upside, above 75.0 will confirm that rise from 33.2 is still in progress. Nevertheless, strong resistance is expected as crude oil enters into 76.77/90.24 fibo resistance zone (38.2% and 50% retracement of 147.27 to 33.2) and bring reversal finally.
In the long term picture, there is no change in the view that fall from 147.27 is part of the correction to the five wave sequence from 98 low of 10.65. While there rebound from 33.2 is strong and might continue, there is no solid evidence that suggest fall 147.27 is completed and we're still preferring the case that rebound from 33.2 is merely a corrective rise only. Having said that strong resistance should be seen between 76.77/90.24 fibo resistance zone and bring reversal for another low below 33.2 before completing the whole correction from 147.27.
Nymex Crude Oil Continuous Contract 4 Hours Chart
Crude Oil Weekly report ( 21 September –27 September )
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Nymex Crude Oil Continuous Contract Daily Chart
Nymex Crude Oil Continuous Contract Weekly Chart
Nymex Crude Oil Continuous Contract Monthly Chart
Fundamental Analysis
Crude oil price retreated to -0.6% to settle 72.04 Friday, the second consecutive day of fall as USD recovered after substantially weakened against major currencies in the past week. On weekly basis, the October contract reached 73.16 the highest and gained +4%. Recent rally in crude oil has been determined by movements in USD and stock markets, rather than fundamentals on the energy market.
US crude inventory declined -4.73 mmb, compared with consensus of -2.3 mmb, to 332.8 mmb in the week ended September 11. Although the draw was much higher than market anticipation, it was driven by robust refinery runs (Refinery runs declined slightly but remained strong at 86.9% of capacity) and reduction in US imports, rather than improvement in demand. In fact, weak demand has been indicated in higher-than-expected increase in gasoline and distillate stockpiles. Gasoline stockpile rose +0.55 mmb to 207.7 mmb while distillate stockpile gained +2.24 mmb to 167.8 mmb, the highest level since 1983.High refinery utilization but weak consumption contributed to the surge in fuel inventories.
Normally, refiners increase gasoline production ahead of and during driving season and then switch to heating oil production after the peak season. However, as distillate inventory remains at sky-high level, the transition will be delayed this year.
Weakness in distillate demand has been linked to industrial production. Although industrial production has picked up in July and August, it remains in multi-year low level. This is quite similar in the case for distillate.
All of EIA, IEA and OPEC's September reports generally depicted a more optimistic outlook on global energy demand. However, a closer look at the supply side suggests that output growth will continue to exceed demand growth modestly in 2010. On average, the anticipated increase in demand was +0.91M bpd in 2010 from 2009 while total growth in non-OPEC supply and OPEC NGLs will be around +1.07M bpd. This means that there's no need for any more growth in OPEC's production in the coming year. This also suggests that although OPEC did not change production at September's meeting, it may need to announce cuts in coming months.
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