Oil has recovered this week after the back end of last week saw some more dramatic falls, mainly in the wake of the weak US jobs data.
Thoughts from the trading floor
NFP leads to more falls
The back end of last week saw even further falls in WTI Crude Oil as we first broke the key support at $89.30. This supported the market on the first touch last week but as week broke the daily flag the subsequent move was confirmed with a break below here. Moreover, beyond this technical move we had the US report a much weaker jobs growth number than had been forecast (69k vs 150k expected). The hope had been that the world’s largest economy would eventually drag as out of the current global downturn but the number eradicated this.
Still trading below the trend channel
Oil again dropped lower during Monday’s Asian session but since those lows seen around $81.20 we have seen a decent bounce (up to above the $85 handle this morning). Much of the move seems to be stemming from hope (rather than expectation!) that the ECB will announce something later today to combat the European crises, but this remains to be seen. Any announcement is likely to push up riskier asset classes of course. The trend is still down in Oil and we still trade below the trend channel support that has been in play since the beginning of May. A close above here (around $85.50 today) would signal a move back into this zone, with the resistance line coming in at $89.75 at current.
As mentioned above, if we do break back into the trend channel then we may see some small upside pressure, with $89.30-75 being key resistance to the upside. The trend is still down though and Crude is likely to attract sellers before we reach these levels, with $86.30 and $88.00 being of particular interest. Short term support lies at $84.10 and $83.20 and a move back down to these levels is likely should we fail around $85.40-50.
Last night saw a mixed release from the API with Oil showing a draw down of 1765k barrels and Gasoline showing a build of 1403k barrels. WTI Crude moved down around 15 ticks on the release. The current estimates for the DOE figures are relatively small, with analysts going for a draw down in Oil stocks of 500k barrels and a build in Gasoline of 950k barrels. We have seen supply generally continue to build over the past few weeks and months so an increase again is likely to lead to more pressure on Crude in the longer term.
Bulls failed to defend $89.30 again. A move back up into the trend channel could see a move back up towards the $89.30-75 area with a close above $85.40-50 being the catalyst.
The trend is still down in Oil and so any sharp moves up are likely to be sold into. The first areas of resistance are $86.30 and $88.00 on the way up, with $83.20 being eyed for any retracement shorts.
Crude remains under pressure and we favour shorting any moves back up. The aforementioned levels would be good shorting areas, but $89.30-75 is the key resistance above.