Crude oil remains heavily bearish with oil inventories coming!

May oil futures - daily chart
May oil futures – daily chart

Both the technical and fundamental picture for oil continue to remain heavily bearish, and even the short term effects of the problems in the Yemen, failed to deliver any meaningful support, with the knee jerk reaction to these events duly running out of steam.

If we start with the technical picture, what is perhaps most revealing on the daily chart are those phases of price action where oil has attempted to rally since early February, but with each failure sending the same bearish message, and combining with one another to confirm the negative outlook longer term. The rally in early February resulted in a wide spread up candle on extreme volume, but which failed to breach the deep resistance overhead in the $57 per barrel region. This weakness was duly confirmed four days later with a further attempt to rise, again on high volume, with the last of these candles then delivering a second pivot high. Under normal circumstances such volumes, should have driven the commodity through this region, but the consequent failure simply confirming the selling contained within this four day period.

The final rally in February then tested this region once more, before it too rolled over over to test the platform of support in the $50 per barrel area, which held into early March, from which once again oil attempted to recover. What is interesting here, and also reflected in the most recent rally of the last few days, is the fact that on each occasion, the high achieved is lower than the previous. In February, the high was $56.80, and in March it was $54.10 with last week’s move only touching $52.48. The picture here is of a series of lower highs on each rally, and in addition, each has been topped off with a pivot high to confirm the weakness further.

Once again last week, we saw a wide spread up candle with high volume, failing to hold to the high of the session and also failing to breach the strong resistance level in place in the $53 per barrel region (as denoted with the red dotted line). More importantly, the immediate reaction lower the following day broke below the platform of support in the $50 per barrel area, with the commodity now approaching the next potential platform in the $46.20 per barrel region. Any move through here will then open the door to a test of the lows of March in the $44.03.

As always, when a market is so oversold, it is too much of a temptation for the big operators to use any news events to take out some shorts, with the events in Yemen a classic example.

Moving to the fundamental picture, here too, the news is bearish for oil, with OPEC continuing to maintain its position and refusing to act on supply. In addition, the supply of oil continues to rise with the US driving up output which is reflected in the weekly oil inventories as well as the alternative energy sources.

Indeed the weekly oil inventories due out later today are expected to confirm a further build of 4.2mbbls. Last week’s build of 8.2mbbls was merely another in a long series of builds for oil inventories, with today’s forecast suggesting this trend is set to continue. Finally, the US dollar is also playing its part, and with the US dollar index now continuing to move higher on towards 100, the outlook for oil and commodities in general remains very very weak.

By Anna Coulling

Charts are from NinjaTrader and the indicators are from Quantum Trading

About Anna 1054 Articles
Hi – my name is Anna Coulling and I am a full time currency, commodities and equities trader. I have been involved in both trading and investing for over fifteen years and have traded many different financial instruments, from options and futures to stocks and commodities. I write and publish articles ( mostly for free ) for UK and international publications on a wide variety of financial issues, and in particular I enjoy helping others learn how to invest and trade.

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