Oil trading near August low, will it hold?

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Crude Oil, Daily

Canadian equities are getting hammered along with the CAD’s slide to 11-year lows as the commodity market comes under fresh attack with crude moving down to the low $38s and the CRB tumbles 1.5% to tip below 181.00. Inaction by OPEC on Friday has spilled over this week and is washing through the vulnerable energy sector. In particular, the lack of even a production target by OPEC was viewed significant breakdown in the cartel.

Crude oil is trading near August 24th lows with daily Stochastic oscillator in oversold levels. However, the resistance near 40 dollar mark is relatively close. Therefore it seems likely that should there be a rally without any new fundamental info that supports demand side, it is likely to be short lived. Should price rally and fail to penetrate 40 level, I expect the next target in the downside is at 36.30. Another option is obviously that the traders don’t see any reason to buy oil now that the Fed rate hikes (at the least the first one of them) are seen as a foregone conclusion and higher dollar means lower oil prices. Both of the technical scenarios are therefore bearish even though the price is near major support level. This is supported by the view held by both parties in the US that the ban to export US oil should be lifted. If the ban is lifted in the near future, the role of US oil producers would strengthen and the supply side would be strengthened as well.

 

Janne Muta

Chief Market Analyst

HotForex

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