Bears Enter the Crude Market

Author: Dmitriy Gurkovskiy, Chief Analyst at RoboForex

Crude oil has been under serious pressure this week. By Tuesday Feb 6, Brent crude dropped below $67 and us still influenced by the sellers. All fundamentals are currently against the black gold.

The selloff started after bear domination in the US stock market. The crude remained near its highs for too long without any fundamental support, and while the investors were hoping for the commodity to keep rising on its own momentum, no supporting data came in for the buyers, and the price started gradually going down. The process got sped up after the selloff in the US market.

As of now, there are some additional negatives pushing the crude down. First, the US dollar got stabilized, recovering after 3-year lows against the euro. The strengthening greenback is a very strong no-no for the crude bulls. Second, Baker Hughes is reporting higher rig count; last week, the indicator came at -1 in the US, but at +4 in Canada. The situation is clear enough, though, if we look at early data: there are 217 oil rigs more in the US now compared to the same period of 2017.

Finally, the US inventories are doing their job, too. For two weeks, both API and EIA are reporting the crude inventories are growing compared to the earlier data. New reports are due shortly, and the consensus shows the numbers could well continue increasing: crude inventories are expected to come at +2M or +3M barrels over the week, while the gasoline is anticipated at +1M or +1.5M. Only distillate products are expected to go down, which is a seasonal thing.

Technically, there’s a reversal coming up for Brent crude, with a few factors showing that. First, the market has been forming the head and shoulders pattern over the last few weeks. With the neckline broken out recently, reversal becomes a very likely story. Another thing is the ascending channel support breakout, with the market testing it afterwards; this is also a downtrend signal. The market has already formed a descending channel, and is now trying to break out another support, which means the momentum is getting stronger. The immediate target of the newly born downtrend may be at $63, while the resistance is near $68.75.

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Any forecasts contained herein are based on the authors’ particular opinion. This analysis may not be treated as trading advice. RoboForex bears no responsibility for trading results based on trading recommendations and reviews contained herein.