WTI Crude – Price Falling with Demand Dropping

US Crude Oil fell as global demand continue to look weak in 2013. The International Energy Agency (IEA) has slashed forecast for 2013 oil consumption by 25,000 barrels a day due to falling usage from Europe. This revision by the IEA is in-line with OPEC’s outlook, who has also cut its forecast for global oil demand earlier. To worsen matters, US production is expected to increase in 2013 as US sought to become the world’s leading oil producer in the near future, depressing prices even further.

Daily Chart

From a Technical perspective, the sell-off from the past 2 days is a confirmation of the bearish breakout back on 5th April, when prices broke below the rising trendline from Mar lows. The rebound from current Kumo’s bottom has failed to trade above the trendline, and is instead being pushed back into the current Kumo. Current Kumo’s Senkou Span A (Kumo Bottom) may provide some support especially since it is the confluence with the Mar consolidation area around 92.0, however a break below 92.0 may trigger acceleration towards 90.0. Stochastic readings are pointing lower after the small bounce. Readings still have some distance to go before entering into Oversold region and reaching the previous trough, which suggest that price may be able to hit 92.0 but follow through lower ma be difficult. Nonetheless, if bearish pressure remain, we could see Stoch readings remain flat deep in Oversold region just like what happened between end Feb – mid Mar, where price managed to break out of the Kumo while stoch readings remain deeply “oversold”, similar to current situation.

Hourly Chart

Short-term charts are also bearish with price breaking below current Kumo and a bearish Kumo twist formed with the bearish breakout. Price recovery post the long drop was unable to break above the 93.4 support turned resistance which is also close to the confluence of the then Kumo’s Senkou Span A. This bearish breakout has negated the step-liked rally seen for the past 3 days and there isn’t evidence from the short-term chart that the bearish momentum is slowing down. If anything, acceleration downwards appear to be picking up pace, with Stoch readings already hitting recent lows and continuing to point lower rather than higher.

It seems that technical charts agree with fundamental outlook for oil. The main question that we have is why is demand of oil looking bad when US companies appear to look extremely healthy with S&P 500 and Dow indices printing new highs rather than new lows. This could be an early warning that stocks may be getting ahead of themselves and if that is certainly true, we need to start looking out for signs of turnarounds for global risk sentiment as fundamentals catch up on bullish sentiments.

More Links:
S&P 500 Technicals – Onward to new highs
AUD/USD – Consolidates Around 1.0550
USD/JPY Technicals – Missing 100 by a hair

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