Oil prices have continued to remain pressured once again this week as a confluence of fundamental and technical forces combine to maintain bearish sentiment. And if we start with the technical picture on the daily chart, the initial weakness was first signalled in mid August, with the narrow spread candle on high volume, and duly validated the following day with a wide spread down candle, and creating the morning star pattern topped off with the pivot high, resulting in the price action then moving back to test the high volume node on the volume point of control in the $48 per barrel area.
The shooting star candle of last week then confirmed this bearish sentiment once again on high volume, with the price waterfall then developing last week in a classical way, with widening spreads and rising volume. Wednesday’s price action drove through the low volume node in the $45 per barrel region, and confirmed once again in yesterday’s price action with another wide spread down candle on high volume. With a high volume node below in the $42.50 per barrel region, this may provide some temporary support, but if breached we could see oil move deeper still and down to test the low volume node in the $40 per barrel which is unlikely to hold once tested. The volume point of control remains firmly overhead in the $50.50 per barrel area, and with Wednesday’s price action breaching the 200 day SMA, this is adding further downwards pressure, with the trend monitor indicator now having transitioned to red on this tim eframe.
From a fundamental perspective, the recent hawkish tone from the FED has helped to provide some much needed respite for the US dollar, but yesterday’s ISM data spooked the markets, the poor number failing to halt the slide lower. Wednesday’s crude oil inventories accelerated the downwards momentum with the build of 2267K against a forecast of 921K exceeding the forecast by some distance, and driving oil prices lower immediately on the release. Crude oil production fell 0.7% to 8.488 bld. Refinery utilisation was up marginally at 0.3% against a previous of -1.0%.
In early trading, crude oil futures have opened marginally higher at $43.55 off yesterday’s close of $43.16, and supported by a weaker dollar, and comments from Russia of a freeze in production. However, prices remain under pressure, and with all eyes now turning to the Non Farm Payroll data, any further US dollar strength will push crude oil lower and through the minor potential support region in the $43 per barrel area.
By Anna Coulling
Charts from NinjaTrader and indicators from Quantum Trading