Oil traders hoping for a slow down in the bearish trend, to enjoy a relaxing weekend away from the screens, may have been tripped up by the Chinese data which slipped out on Saturday, with industrial production coming in at 6.9% against a forecast of 8.8%, missing the forecast by some distance, and whipping up the perfect storm. This was on the back of the previous which came in at 9.0%, suggesting that at the very least, a slowdown in Chinese growth is now a real possibility, having grown at its weakest rate since December 2008. The Chinese data comes on top of growing concerns over global economic growth, and with the world’s second largest economy now showing signs of joining the US and Europe, these are simply adding to the weak picture for crude oil and other commodities.
The CRB index reflects the weak picture for commodities, having fallen from the high of 312 which was tested twice during the summer months, to currently trade in this morning’s session at 280.70, and down another 1.20 points on the day at the time of writing. The index is now looking weak and set to test the 272.30 level of the start of the year, a further worrying sign for commodity bulls.
In overnight trading, the news from China has seen the December WTI contract open with a huge gap down on the daily chart, with the commodity breaking through the potential support in the $91.50 per barrel region, a level I have mentioned in several previous posts on oil, and one which was key to providing any platform of support. With this region now breached, and with the additional drivers of over supply and lack of demand also adding their own weight to the move, oil prices really are under the cosh this morning, despite the efforts of the Saudi’s to manage their output.
Now the question is how far oil will fall, before it finds some buying support, but to date, selling pressure is increasing, and clearly evidenced on Thursday and Friday, with a significant increase in volumes failing to halt the slide, and sending a signal of further weakness to come, duly validated in oil trading on Globex overnight. From a technical perspective the next logical level of potential support now awaits in the $86.20 per barrel area, and given the current fundamental picture, a move to this level now looks increasingly likely.
By Anna Coulling