With the unrest in Egypt, the price of a barrel of oil has stayed elevated. However even with the bullish Flash PMI data out of China this morning, we still aren’t seeing the strength in the oil market as one might expect.
For the last month the price of spot crude oil ($CL_F) has been consolidating around the $108 to $103 area. Looking at the previous declines in crude in 2011 and 2013 we saw similar periods of consolidation before oil corrected to $80/barrel. Taking a closer look at the daily chart below we can see signs of deterioration forming.
When crude first hit resistance at the $108/barrel level in June we saw momentum break above 70 as buyers trekked higher. This was a logical place for black gold to find resistance as it was the high in 2012. From there the consolidation began, with the Relative Strength Index finding support at its halfway point (50) before price knocked on the door of $108 a second time. We then saw the RSI indicator weaken each attempt buyers made to take crude higher. Yesterday we saw RSI break below 50 after two previous attempts, giving us a sign of potential further weakness in oil prices.
Going forward I’m looking to see if $103 is able to break which would also coincide with the 50-day moving average. I’ve also noticed the short-term trend line that J.C. Parets noted in his weekly video last week between the relative performance of crude oil and natural gas is also being tested as nat gas has strengthened and threatened crude’s relative uptrend.
It seems the unrest in Egypt is what is keeping the premium priced into crude oil. Although, the COT data favors a bearish slant towards crude with Commercial Traders heavily shorting the commodity with the largest net-short position going back to at least 2005. If $103 is unable to hold the next level of support would be the psychologically important $100/barrel and then $92/barrel. We’ll see where the market takes crude, but things aren’t looking good for the bulls.
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