Crude Oil in consolidation between 54.22 and 43.56.
As the US Dollar resumed its bullish rally, commodities across the board continued to fall including Oil. Although prices barely moved within the larger time frame, Crude Oil is clearly in a consolidation phase with a possible breakout taking shape. However the fact that prices seem to have stabilized for now is being taken in good stride as some of the major economies’ inflation data starts to price in the previous sharp declines.
Since January, Crude Oil has been trading within the high and low of 54.22 and 43.56 and any further moves in Crude Oil is likely to be noticed only on a break of either of these two highs and lows. Note that a break down to the downside will see Crude oil hit a major support level near 41.69, which completes the larger monthly triangle breakout pattern’s minimum objective.
Fundamentally, there hasn’t been much news supportive for Crude Oil. Shale Oil production, while slowing down in the US has definitely not impacted the industry much. Although the Oil rig counts continue to fall, the fact remains that Shale producers are now focused on completing the backlog of previously drilled wells. This could possibly put continued downside pressure on Crude Oil prices until we start to see some kind of normalization in the inventories. There have also been various news reports that the companies which were using storage containers in the sea to store the excess inventories are also starting to run out of storage space, all of which could put some short-term downward pressure on Crude oil before demand starts to pick up once the current supplies start getting consumed.
From an economic point of view, GDP in China is set to grow at a slower pace, while the US economy continues to steam ahead with a healthy growth rate, meaning that from the demand side, the consensus is rather mixed.
From the 4-hour charts, the triangle pattern breakout failed to push prices higher as Crude Oil failed to rally above 52.41 levels. The decline from here saw a break below 49.69 levels as well which if turns to resistance could see a breakdown to 47.8 through 47.28 levels and could possibly threaten this support level paving way for a dip lower to 44.76.
Although not shown here, the price point at 47.28 would mean that Crude Oil could likely start looking to push lower as it would invalidate the recent breakout from the falling trend line in February (Feb 13). The daily charts show a support established at 49 (48.99) and is currently consolidating at the levels of 49 through 48. As long as this level holds, our bias remains to the upside, but a breakout out from below could mean Crude Oil would eventually head down to 41.7, which will then make it a very interesting scenario to watch for.
