On Monday, crude oil picked up the minor uptrend which began last week, but when U.S. equity markets could not hold on to gains, sold off into the close to finish marginally higher.
Technically, Monday’s rally took the market into a .618 retracement level at 76.44 where it found sellers. This level was based on a short-term range of 78.86 to 73.58. The failure to regain an uptrending Gann angle at 71.49 also contributed to the weakness. This angle is at 77.24 today. In order to trigger a breakout to the upside, the market is going to have to regain and establish support above this angle.
Looking at the overnight chart picture, the market is now trading under a downtrending Gann angle at 75.97, indicating weakness. In addition, after failing at the .618 level on Monday, the market is now trying to work below the 50% level at 76.36.
Based on the current chart pattern, the main trend is still down because of the lower-top, lower-bottom pattern which usually means traders are more inclined to sell rallies.
Fundamentally, November Crude Oil remains under the influence of the equity markets. It can also be said that the direction of the crude oil market is being controlled by the direction of the stock market. This coupled with the recent rise in the Euro, means that crude oil has decoupled from this market. This is because the weakening U.S. economy is behind the rally in the Euro. A weakening economy means lower demand for energy.
Crude oil is also feeling pressure due to analyst forecasts for an increase in U.S. gasoline inventories. Expectations are that the next U.S. Energy Department report on Wednesday will show that inventories swelled to their highest levels in six months.
Looking at the hard numbers, the government’s figures on Wednesday may show that refined gasoline inventories grew 750,000 barrels last week from 226.1 million. Today’s API report may show similar results.
Both technical and fundamental factors are driving this market lower. The chart pattern suggests that traders are selling rallies while gasoline inventory numbers are growing as the demand falls because of the weakening U.S. economy. Losses may be limited in crude oil because of the strengthening stock market and because of a forecast that crude stockpiles probably declined 600,000 barrels last week from 358.3 million.
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