WTI Crude: Bulls Barely Holding On, Strong Risk Appetite

We all know that no war makes crude a dull boy, but today’s early price action is still beyond expectations.

Risk appetite is much higher across board due to Lawrence Summers’s relinquishing his front runner position for Fed Chairman. This increase in risk appetite is evident via the jump in S&P 500 Futures from just under 1,690 to 1,710, and around 200 points increment for Dow 30. Risk currencies such as AUD, EUR and GBP are all stronger against the Greenback as well. However, instead of trading higher, Crude Oil actually gapped lower this morning. The decline is not limited to WTI only, with Brent Crude suffering a significant sell-off on market open.

The reason for the decline is obvious – Russia and US have come out with a deal for Syria to eliminate its chemical arsenal over the weekend. Syrian has indicated that the Government will implement the agreed deal as soon as UN approves it. This marks the end of any possibility of military conflict in Syria, with Syrian Reconciliation Minister Ali Haidar saying that the deal “helps avoid the war”.

Certainly without any Middle Eastern conflict, Oil prices will definitely drop. Yet, it seems that this fall in Oil remains great despite the broad risk appetite that is brewing, highlighting how precarious current oil prices are right now. As mentioned in the US10Y analysis, even though Summers will no longer be the next Fed Chairman, the QE tapering show will still go ahead, and that will be a huge bearish event risk moving forward. Should risk appetite evaporates, we could potentially see Crude Oil falling even further from where we are right now.

Hourly Chart

Looking at technicals, 107.50 appears to be holding prices up even though the rising trendline has already been broken. Stochastic readings suggest that there may be some more leg room for bears to stretch further, possibly around the 107.0 floor. However that does not necessary mean that price will be able to rebound higher from there as short-term pressure is bearish.

Daily Chart

This short-term bearish pressure is exacerbated on the Daily Chart, with 103.0 opened up as a bearish objective following the breach back within the 103.0 – 108.5 channel. Stochastic readings remain pointing higher, but that could be a red herring as we could easily see a peak forming yet again considering that the past 3 peaks have been consistently lower. From a price action point of view, we are trading below the descending trendline as well, adding further bearish pressure towards 103.0.

Unlike Short-term chart, long-term price action is actually bullish, due to the huge economic recovery experienced within the United States. Hence, the chances of 103.0 holding is much better than 107.0. However, considering that the rest of the global economy remains bearish, especially China – who is slated to be the biggest Oil consumer by 2017, it remains to be seen whether improvement in US demand alone will be able to drive WTI prices higher further in light of slower global consumption.

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