Technical Analysis
Nymex Crude Oil (CL)
Crude oil dived sharply to as low as 65.05 last week after breaking medium term trend line support decisively. The development affirms the case that crude oil has topped out in medium term at 75.0 and indicates that fall from there has resumed. Initial bias remains on the downside this week and sustained trading below 65.23 cluster support (100% projection of 75.0 to 67.05 from 73.16 at 65.21) will target 161.8% projection at 60.30 next, which is close to next psychological level of 60. On the upside, above 68.02 will turn intraday outlook neutral and bring consolidation, but rebound should be limited below 71.77 resistance and bring fall resumption.
In the bigger picture, sustained trading below medium term trend line support solidifies that case that medium term rebound from 33.2, which is treated as correction whole down trend form 147.27, has completed at 75.0 on bearish divergence conditions in daily MACD and RSI. Further break of 58.32 cluster support (38.2% retracement of 33.2 to 75.0 at 59.03) will confirm this case and pave the way for a retest of 33.2 low. On the upside, break of 71.77 resistance is needed to invalidate this view. Otherwise, outlook will remain bearish.
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 even in case of another rise 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 ( 28 September – 4 October )
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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
WTI crude oil price was weak most of the day on Friday and was dragged to as low at 65.05 before strong US existing home sales lifted price. The benchmark contract settled at 66.02, paring losses in previous 2 days. On weekly basis, crude oil price slid -8.4% and fell on 3 out of the past 5 trading days.
In the coming week, we believe there's chance for oil to weaken further. There is possibility for price break the lower level of the recent trading range of 65-75 toward 60. October is normally a shoulder season for energy consumption. However, price will be well-support as it approaches 60.
The selloff last week was triggered by huge build in US crude inventory which increased +2.86 mmb to 335.6 mmb while the market had anticipated a draw of -14.5 mmb. The unexpected inventory build was driven by a +10% increase in oil imports and decline in oil consumption. Decline in oil demand will continue and probably worsen in coming weeks. Mid-September to early October is the transitional period between the end of the driving season and the beginning of winter heating season. During this period, rise in inventory and decline in demand are 'normal'. However, the current situation has been exacerbated by the extremely weak first half which has driven inventory to very high and demand to very low levels.
Refiners are normally busy with gasoline production before and during the peak driving seasons, and they should be switching to heating oil production at the end of the driving season. However, the switching process will be delayed this year as distillate inventory is abundant and refining margin is low. Decline in refinery runs will cause crude to build up further.
Geopolitical tension arose as Iran has been building a second plant for enriching uranium. In a letter sent to the United Nation's International Atomic Energy Agency (IAEA) on September 21, Iran stated that 'a new pilot fuel enrichment plant is under construction' and more information about the plant will be 'provided at an appropriate and due time'. US President Obama, President Sarkozy of France and Prime Minister Gordon Brown of Britain said that Iran's actions are 'threatening the stability and security' of the world.
It's very likely the UN will sanction Iran in coming months, One possibility is restriction on gasoline sales to the nation while Iran may halt its oil exports in return. Although this may trigger worries about gas supply shortage, the actual impact in the near-term should not be significant especially when there's over 5M bpd of spare capacity.
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