Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Crude Oil Drops Below $100; Now What?

By

Further deterioration shouldn't surprise anyone. Here's why.

PrintPRINT
On Tuesday, crude oil lost 1.39% as concerns over a slowdown in China and rising US stockpiles weighed on the price. Because of these circumstances, light crude declined below the psychological barrier of $100 per barrel for the first time since mid-February.
 
As my firm emphasized in our last oil-trading alert, weak Chinese trade data (released over the weekend) fueled concerns over slowing growth in the world's second-largest oil consumer and had a negative impact on the price on Monday. As it turned out, these disappointing numbers continued to push crude oil lower yesterday, which resulted in a drop below the crucial level of $100. Because of these circumstances, oil investors should keep an eye on fresh economic data from China on Thursday (including industrial output, retail sales, and urban investment).
 
Also yesterday, expectations for another increase in US crude inventories raised concerns with oil investors and pushed crude oil lower. As a reminder, overall US crude-oil supplies have risen for seven straight weeks (despite falling storage levels in Cushing), but the price of light crude has been supported by strong demand for heating fuels refined from crude oil. However, the EIA showed in its last weekly report that inventories of distillates (such as heating oil and diesel) rose by 1.4 million barrels (instead a drop of 1.1 million barrels), indicating a slowdown in demand as the weather improved. Additionally, we should keep in mind that refinery utilization rates typically fall in February and March as refiners close units for seasonal maintenance. Therefore, refinery shutdowns may have partly helped in boosting crude stockpiles, and such circumstances will likely have a negative impact on the price.
 
Please note that analysts are expecting that today's weekly report from the US Energy Information Administration (which will release storage data for the week ended March 7) will show a 2-million-barrel rise in crude-oil supplies and a 400,000-barrel-drop in stocks of distillates (including heating oil and diesel fuel).
 
Let's move on to the technical changes in crude oil (charts courtesy of http://stockcharts.com).
 

Click to enlarge
 
Here is a quote from my firm's last oil-trading alert:
 
[If] crude oil drops lower, we will see a re-test of the strength of a support zone created by the 38.2% Fibonacci retracement (based on the entire rally) and the 200-day moving average. ... if this strong support zone is broken, we will see further deterioration and the first downside target will be the 50% Fibonacci retracement, which is a few cents below the 50-day moving average (currently at $98.41).
 
Yesterday, we noticed such price action as crude oil declined below the lower border of the rising trend channel and broke below the support zone. What's most important, yesterday's downswing materialized on relative large volume, which confirms the strength of the sellers and suggests that further deterioration to the downside target is quite likely in the coming day (or days). Additionally, sell signals generated by the indicators remain in place supporting oil bears.
 
Now let's take a look at WTI Crude Oil (the CFD).
 

Click to enlarge
 
In our last alert, my firm wrote the following:
 
[If] oil bulls do not manage come back to the range of the rising wedge, we will likely see another attempt to reach one of the downside targets -- 38.2% Fibonacci retracement or even to the Feb.14 low (we marked this area with a green ellipse). Please note that although the Stochastic Oscillator generated a buy signal, both other indicators still support sellers.
 
Looking at the above chart, we see that the buyers failed, which triggered a sharp decline yesterday. With this downswing, the CFD dropped below the 38.2% Fibonacci retracement and approached the lower target. As you see on the daily chart, yesterday's drop also resulted in a decline below the 50-day moving average, which serves as resistance at the moment and successfully stopped buyers earlier today. This show of weakness encouraged oil bears to act and triggered a downward move, which took the CFD to the 200-day moving average. If this support line encourage buyers, we may see a corrective upswing later in the day. However if it is broken, we will likely see further deterioration. Please note that the nearest support (the 50% Fibonacci retracement) is slightly below the current level and may pause (or stop) the current correction. However, taking into account the fact that the indicators still support sellers, we may see a drop to $97.84 (the 100% Fibonacci projection based on the 2014 and March 7 highs and March 6 low) or even to the 61.8% Fibonacci retracement (around $96.55) in the coming day (or days).
 
Summing up, the short-term outlook has deteriorated significantly as crude oil declined below a support zone created by the 38.2% Fibonacci retracement and the 200-day moving average. Taking this negative fact into account and combining with the current situation in the CFD, it seems that further deterioration should not surprise us.
 
Very short-term outlook: bearish
Short-term outlook: mixed with bearish bias
MT outlook: bullish
LT outlook: mixed
 
Trading position (short-term): In our opinion, opening short positions at the following terms is a good idea: stop-loss orders for crude oil and WTI Crude Oil (CFD): $102.95. The above is not an investment / trading advice and please note that trading (especially using leveraged instruments such as futures or on the forex market) involves risk.

For the full version of this essay and more, visit Sunshine Profits' website.

Nadia is a private investor and trader, dealing in currencies, commodities (mainly crude oil), and stocks. Using her background in technical analysis, she spends countless hours identifying market trends, major support and resistance zones, breakouts, and failures. In her writing, she presents complex ideas with clarity that enables you to easily understand market changes, and profit from them. Nadia is the person behind Sunshine Profits' three premium trading services: Forex Trading Alerts, Oil Trading Alerts, and Oil Investment Updates.

Twitter: @SunshineProfits
No positions in stocks mentioned.
PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE