Crude oil is still hovering around the long-term channel support and seems to be ready for another attempt to break lower. Price barely made it up to the retracement areas, much less the rising channel resistance for a continuation of the climb as bearish pressure remains in play.
A break below the channel support around $46 could mean a longer-term downtrend for crude oil as market oversupply concerns are resurfacing. The 100 SMA crossed below the longer-term 200 SMA to signal that the path of least resistance is to the downside. In addition, the gap between the moving averages is getting wider so selling pressure is getting stronger.
Stochastic is pointing down so sellers are in control of price action. However, the oscillator is nearing the oversold zone so bears might need to take a break and let buyers take over. RSI is also pointing south so crude oil could head in the same direction.
The commodity is still reeling from the pickup in stockpiles, which are casting doubt on whether or not the OPEC output cut is enough to have a lasting impact on prices. Recall that the oil cartel agreed in November to trim production starting January this year onto the next six months and some are already calling for an extension of the agreement until the end of the year. However, some energy ministers have countered that it’s too early to decide on this.
Although the latest inventory reports from the American Petroleum Institute and the Energy Information Administration have shown a dip in stockpiles, market watchers doubt that this will be enough to shore prices back up. After all, the recent Fed interest rate hike is likely to weigh on spending and investing activity all over the globe, thereby dampening demand for raw materials and energy commodities needed for production.
In addition, the CFTC positioning report showed that bullish bets on crude oil dropped by a record amount in the previous week after the commodity slipped below $50/barrel sharply. Rising US oil rig counts and production levels as companies ramped up operations to take advantage of the earlier pickup in crude oil price have led to oversupply while demand remains feeble.
For the week ending March 14, hedge funds decreased their net long bets by 23% to 288,774, which is the largest decline on record and the lowest level since December, causing crude oil to slip by 10%. Longs fell 8.9% to the lowest level since early January while shorts doubled from the previous week to the highest level since November.