Sunday, 02 October 2011 13:58
Despite building negative sentiment, crude oil has held up quite well compared to other asset
classes, namely industrials metals like copper and silver as well as equities. From a global
perspective, demand from emerging markets like China and India is helping to hold the nearby
futures contract above the September low and the May 2010 bottom.
The key to this week’s market will be whether these major bottoms continue to hold in the face
of growing nervousness about a weakening global economy. The close near the bottoms at
76.61 and 76.25 make these two prices easy targets especially if the rout continues in the
equity markets.
Longs have to be nervous at current price levels and are likely to throw in the towel on their
positions if these bottoms fail. In addition, short-traders could be smelling blood in the market,
leading to the possibility of renewed selling pressure once these prices are taken out.
Technically the main trend is down on the weekly chart. Traders have to be careful selling
weakness through the last main bottom at 76.61 because of the May 2010 bottom at 75.25.
Once these prices are cleared, the market is likely to acceleration to the downside.
Downtrending resistance from the 101.39 top is at 81.39 this week. A trader through this level
may be a sign of developing strength, but a close over this angle will be more important. It is
possible that a support base could begin forming; however, the trend is not going to change to
up until the September swing top at 90.69 is violated.
Factors Affecting Crude Oil This Week:
• European Debt Crisis – Not only does Europe have to worry about a default by Greece, but it
must also deal with a potential banking crisis and the possibility that the Euro Zone nations have
not pledged enough money to combat money problems in Spain, Italy and Portugal. This is
going to continue to underpin the Dollar, leading to pressure on the crude oil market.
• Greek Default – The uncertainty regarding whether Greece will default or not continues to hold
the financial markets hostage. Speculators and investors are likely to refrain from buying until
they can be certain that the fundamentals regarding this event have turned favorable. Although
a complete default hasn’t been ruled out, there is still the possibility of a partial default. It’s
difficult to see why any speculator would take a long position with conviction with this issue
continuing to hang over the markets.
• Supply and Demand - Last week’s EIA inventory report showed an increase of 1.9 million
barrels from the previous week. Even more significant is the fact that the figure was above the
upper limit of the average range for this time of year. This could be read as a breakout to the
upside, meaning that an uptrend in supply is beginning to develop. This is a potentially bearish
development.
Summary
The poor close for the week and the quarter are signs that short-traders have taken control of
the crude oil market. The recent two-sided volatility makes it appear that the heavy selling
pressure hasn’t begun yet. This could occur if the market takes out a pair of bottoms at 76.61
and 76.25.
By. FX Empire
FXEmpire.com is the Forex flagship site of the FX Empire Network. The FX Empire Network
provides readers with the most expert and most timely technical analyses, fundamental
analyses and news-pieces; this in order to empower them to make for themselves the best
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