Crude Oil Technicals – Volume Boom, Price Bane

Feb is proving to be a bad month for Crude, as price slid down once more on Thursday due to reports of supply surplus amidst negativity in the market after the US Senate turned down 2 bills aimed to postpone the sequester cuts. West Texas Intermediate has fallen around $6 a barrel in Feb, while Brent Crude did one better, shedding $7 a barrel and narrowing the WTI-Brent spread.

It seems that there are more and more supplies of Oil coming out. Oil companies are planning about 10 wells to be dug in Morocco, twice of what was drilled in the early 2000s. Australia has also discovered a new shale that is reportedly rivaling Canada’s current output. Even US is surpassing expectations, despite analysts earmarking the country to become the largest Oil exporter by 2030.  The increase in supply is not helping price when demand in oil – highly correlated to global economic health – is looking tentative even after Bernanke has injected confidence into the market with his backing of QE. The market bulls may have also exhausted themselves after a long bullish January and traders are beginning to close out their positions after seeing price not heading anywhere higher – adding further pressure on the bearish front.

WTI Futures Daily Chart

Daily Chart of WTI shows the strong rate of decline. However, price is still trading above the 50% Fib retracement which is generally regarded as the important “turning point” between a pullback and a reversal. Stochastic is also lower than the previous 2 troughs back in Oct and Dec 2012, signalling that this selling off is too fast, implying that a temporary bullish uptick rebound is possible.

Weekly Chart

Weekly price may also find some structural support, however that may prove to be a double edged sword as a break below below the support (which is close to the apex of current triangle) may result in acceleration of the bearish momentum. The decline which is considered “too fast” by Daily is certainly not the case in the view of Weekly. In fact, it is interesting to note that current Stoch peak is slightly higher than the one seen in Sep and Mar/Apr 2012 even though price level is certainly lower.

Brent Crude Oil Daily Chart

Brent Crude is looking to accelerate lower after the break of both 50.0% Fib and structural support. The 50.0% Fib is also the confluence with the ceiling for price action between Nov to mid-Jan, making the breakout all the more significant. Similarly, though stochastic readings is deep into the Oversold region, there seems to be no immediate threat of a trough forming yet as both Stoch/Signal lines appear to be accelerating towards the 0.00 mark.

Brent Crude Futures Weekly Chart

Weekly Chart is also showing an important early breakout that looks to be confirmed using Stochastic as confirmation. Preferably price should retest 115.0 again as a further confirmation of bullish failure, but noting the overall fundamentals looking bearish, and the alignment of Daily and Weekly chart, it seems unlikely that bulls will be able to retest 115.0 on the basis of a simple technical rebound/dead cat bounce. Nonetheless, there remains a chance that US may be able to pull a fast blinder with regards to sequester cuts. Should that happens, the temporary sentiment may turn bullish to push prices for both Sweet and WTI higher, but the long-term supply issues remain which will continue to weigh against the bulls.

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