Key Points:
- Crude oil breaches May low.
- Choppy inventory figures contribute to selling.
- Medium outlook remains bearish.
Crude oil retreated for the third straight day as the commodity remains beset by fundamental issues of oversupply. However, the black gold is now at a critical juncture as price action has just breached the key low of $43.03 from May which is likely to set it up for further pain in the short term.
Taking a quick look at the technical indicators clearly highlights the strife that crude oil is currently facing. Price action has been on a relatively linear slide since early June which has taken it from a high of $51.59 to just under the $43.00 handle.
The 20, 50, and 100 Day EMA’s have also started trending lower with a bearish cross over between the 20 and 50 time periods occurring in the last few days. Price action has also declined decisively below the 100-Day moving average which is likely to act as a form of dynamic resistance for any retracements above the $45.00 handle.
Subsequently, the breach of the May low has certainly opened up the downside in a manner that will scare commodity bulls. This is especially due to the fact that the next major support level is likely to fall around the key battleground of the $40.00 handle. Therefore, there are plenty of technical reasons to see the commodity challenging that level in the coming weeks.
However, don’t expect any sharp collapses over the next few days because it is highly likely that crude oil will need a small bounce before recommencing its march lower.
Currently, both the RSI and Stochastic Oscillators have trended lower and entered the reversal zones. Subsequently, there may need to be a period of retracement or sideways consolidation to relieve the pressure on those indicators.
Ultimately, crude oil is being attacked from all sides with both the technical and fundamental indicators pointing to increased bearish pressure in the coming months. Even the much vaunted US driving season has largely turned into a fizzer with gasoline stockpiles dominating prices.
In addition, the general choppiness of oil inventory figures has made developing a medium term fundamental trend difficult. However, despite the changing variables a cursory review of the charts is likely to show that crude oil is only headed in one direction in the medium term and that is down.