WTI Crude – Staying Above 100.0 After Yesterday’s Sell-Off

Crude Oil took a pounding yesterday despite positive risk trends which saw global stocks climbing higher. Certainly global economic fundamentals aren’t the strongest right as evident via latest manufacturing numbers – Japanese Tankan Indexes were mostly below expectation, HSBC Chinese Manufacturing PMI was even worse as the gauge suggest that manufacturing activities are slowing at an even more aggressive pace while Japan’s is growing at a lower pace than expected. The same could be said for US ISM and Markit Manufacturing PMI numbers which are both bullish but readings are nonetheless below expected. Given all theses misses, it is clear that market has over-estimated the pace of recovery in the manufacturing sector and it is easy to understand why Crude oil – the bread and butter for all manufacturing activities (due to both energy consumption and as raw materials) – collapsed in such a spectacular fashion.

Nonetheless, the decline is not so clear cut after all. Firstly, prices did not really suffer any sharp declines during early Asian hours when the disappointing Japanese and Chinese numbers were released. Also, slight declines were seen during early European hours, when French and German economic data which were better than expected were released. What is even more interesting is the fact that the bulk of yesterday’s decline occurred during US hours, when stocks were the most bullish due to S&P 500 hitting new record highs. To further complicate the mystery, it should also be noted that industrial metals such as Copper and Iron actually traded marginally higher instead of lower.

Therefore, even though there are good fundamental reasons for Crude to go down, it may not be fundamentals that have driven WTI prices lower.

Hourly Chart

This is actually good news for WTI bears, as this would mean that downside risks that were present before the slide remains in play, and we could see further sell-offs if broad market bullish trend starts to reverse. For now, given the continued bullish sentiment in the markets right now, we should be expecting some sort of bullish rebound in the short run. Currently price has already climbed back above 100.0 round figure, and Stochastic readings is signalling the beginnings of a bullish cycle – favoring a move towards 100.5 round figure or even 100.80.

Daily Chart

Bullish bias on the Daily Chart remains though, as yesterday’s decline failed to break 100.0 nor even test the rising trendline in any meaningful manner. However, Stochastic readings affirmed current immediate bearish momentum with a bearish cycle signal, a good confirmation for the bearish rejection of 102.0 resistance which has impaired bullish momentum and suggest that the decline from March high is still in play.

There is also potential for further sell-off today if bears receive a favorable report from Department of Energy later today. Market expects Crude Oil inventory to grow by 1.1M barrels – which would make the 11th consecutive week of inventory build up. The report released by API during the end of US trading session reflected a 5.8 million fall in inventory instead, and even if DOE numbers meet expectations or grow less than expected it is possible that bearish traders will use it as an excuse to short WTI Crude as long as the decline is less than the API number, which can help to bring us below the rising trendline.

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