Fundamental
Overview
In the latter part
of last week, crude oil sold off without a clear catalyst. Some people have
been citing the FT piece
about Saudi Arabia being ready to abandon the $100 target but as Amena Bakr,
senior research analyst at Energy Intelligence said, there was never a target
and such a high price wouldn’t even make sense since it would just hurt demand.
Some others have
been citing the planned increase in production from December as the output hike
planned for October has been delayed, but then again this has been known for quite
some time.
The rally in crude
oil stalled since the last US
S&P Global Manufacturing PMI where the index fell further in
contraction. We got a brief rally following the news of China going big on the
easing measures, but we couldn’t break above a key resistance level.
I suspect some of the
weakness might be due to defensive positioning into the US ISM Manufacturing
PMI tomorrow which is going to be a key release for the market. Central bank
easing generally leads the manufacturing cycle, so we can expect global growth
to pick up.
All these reasons should be
bullish for the market and support prices in the next months but it’s not yet
clear in the data and might not be reflected for a couple of months. Watch the
new orders index as it’s a proxy for demand and should be the first to respond
to a change in conditions.
As a reminder, the
positioning in crude oil is at record lows and the sentiment is very bearish.
These factors can generally offer great contrarian opportunities when we get to
an inflection point in the fundamentals.
Crude Oil
Technical Analysis – Daily Timeframe
Crude Oil Daily
On the daily chart, we can
see that crude oil got smacked back down from the key 71.67 resistance. The buyers couldn’t sustain a
breakout and eventually the sellers prevailed erasing most of the rally from
the lows.
If the price falls further,
the buyers will likely step in around the 63-65 support zone to position for a
rally into the 90 handle. The sellers, on the other hand, will want to see the
price breaking lower to increase the bearish bets into the 50 handle next.
Crude Oil Technical Analysis – 4 hour Timeframe
Crude Oil 4 hour
On the 4 hour chart, we can
see that the price fell below the 68.50 support in the latter part of last week
but eventually managed to erase the losses and rise back above it. The buyers
will likely step in around these levels to position for a rally back into the
71.67 resistance, while the sellers will look for a drop back below the support
zone to position for a fall into the 63-65 support.
Crude Oil Technical
Analysis – 1 hour Timeframe
Crude Oil 1 hour
On the 1 hour chart, we can
see that we have been printing a series of higher highs and higher lows on this
timeframe as the bullish momentum picked up.
We have a minor upward trendline
defining the current momentum where the buyers will likely keep on leaning onto
to position for new highs. The sellers, on the other hand, will want to see the
price breaking lower to position for new lows. The red lines define the average daily range for today.
Upcoming
Catalysts
Today we have Fed Chair Powell speaking. Tomorrow, we get the US ISM
Manufacturing PMI and the US Job Openings data. On Wednesday, we have the US
ADP report. On Thursday, we get the latest US Jobless Claims figures and the US
ISM Services PMI. Finally, on Friday, we conclude the week with the US NFP
report.