WTI Crude Technicals – Eyeing 107.0 Break

Crude Oil prices shrugged off a minor decline due to a lower implied demand reflected by latest supplies figures compiled by the American Petroleum Institute (API). Actual crude supplies fell close to 1 million barrels for the week ended on 9th August, versus an expected fall of 1.5 million. Refined products supplies rose unexpectedly as well, with Gasoline gaining 1.7 million barrels versus an expected decline of 2 million, and Distillates increasing by 1.1 million versus an expected 1.0 million climb. It seems that it is not just implied demand, but implied future demand (as seen from refined products) that is decreasing as well – both of which do not bode down well for Crude Oil prices. Couple that with reports coming from Libya saying that Oil exports will resume by next week, there is really nothing bullish for prices as far as fundamentals are concerned.

Hourly Chart

However, price remained highly elevated, with 106.0 continue to hold steadily, with added strength provided by the rising trendline. Yesterday’s price action continue to affirm that Crude Oil is running mostly on technicals, and potentially on unique bullish sentiment pertaining to itself and not of the broader market (since US stocks has not really enjoyed the same bullishness that started since Crude bottom out on Thursday).

This would mean that current rally, which is in a sense defying the slowdown in China – the soon to be largest oil guzzler in the world, may not be that sustainable in the long run. Nonetheless, from a short-term technical perspective, it is possible that price may be able to bounce higher using the same trendline once again, with a break of 107.0 which will allow further acceleration higher. Stochastic readings supports this notion with readings currently below the Overbought region, with Stoch/Signal line appearing to diverge once again, suggesting a pick up in bullish momentum in the near future just when price approaches the trendline.

Weekly Chart

Long term chart seems to follow the fundamental narrative better. Even if price manage to hit above 107.0, a sterner test awaits around 110.0 where price failed to overcome back in Feb 2012. Assuming that the barrier is broken, 115.0 will be the next level awaiting, and price will need to clear a gulf of $8 from now till then in order to establish fresh new long-term bullish impetus. Stochastic readings suggest that such scenario does not rank high in terms of probability, with signs of topping suggesting that current ceiling may hold – can be confirmed with a breach of 80.0 by Stochastic and a price break of 102.5. Short-term stochastic is also in line with this outlook, as readings are rather close to being Overbought currently, and is likely to be overbought when 107.0 is broken. As such, this align with the overall fundamental outlook that suggest that Crude prices is not sustainable higher.

If this hasn’t been stressed before, it bears reason to re-emphasis again – do not simply therefore sell right here right now, as market can still irrational longer than you can stay solvent (courtesy of Keynes). A prudent approach is always preferred over aggressive and risky trading behaviors in the long run.

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