WTI Crude: Karen Over But Bearish Storm Blowing Now

Crude Oil futures traded lower during Asian hours following the dissipation of Tropical Storm Karen which has shut down production in oil rigs off the Gulf of Mexico. So far there hasn’t been any reports of damage on any of the rigs, and operations are expected to be gradually restarting, bringing supply back to the original levels. Besides this, Monday is also not a good day for risk sentiment. Over the weekend we saw US Government Shutdown situation reverting back to square one with House Speaker Boehner rejected any possibility of House passing the Government budget bill without any amendments- e.g. “clean” bill. This set us back to the beginning of the negotiations when things were looking hopeful on Friday with some reports suggesting that a sizable group of House Republicans are willing to back down in order to fund the Government, forcing Boehner to soften his stance.

Things on the largest Oil guzzling country isn’t look great either. World Bank has just cut the 2013 growth forecast for China from a previous 8.3% to 7.5%, which would in turn translate to a lower Oil consumption outlook. Middle Eastern crisis has also softened significantly, with US Secretary of State Kerry saying to journalists that US and Russia have agreed that there will be no military action in Syria during the APEC summit. So basically 4 major news released over the weekend and Monday morning, and all 4 news are in favor of a weaker Crude, which explains the close to $1 shave off each barrel of crude since this morning.

Hourly Chart

Relief may be coming soon though if technicals are reliable. Currently price is hitting the Channel Bottom and close to the 103.0 round figure support. Stochastic readings are already within the Oversold region and add strengths to the previously mentioned supports. Should prices rebound higher from here, 103.5 will be the immediate bullish target.

Weekly Chart

The importance of 103.0 is also shown on the weekly chart, where it is also the confluence with the rising trendline that has been in play since the April lows. Should 103.0 is broken, we may see quick acceleration towards the 98.0 – 100.0 support zone which was the ceiling back between Sep 2012 – June 2013. Stochastic readings suggest that current bearish momentum isn’t over yet though, with readings still a fair distance away from the Oversold region. It is also worth noting that last week’s candlestick pattern is a bullish hammer, and should have inspired further bullish push today. Hence, today’s bearish action invalidates the bullish reversal signal and underlines the strong bearish pressure/momentum that Crude oil is under currently.

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