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Crude Oil Analysis for the Week of September 19, 2011

What promised to look like a bullish week on Tuesday, failed as the rally in November Crude Oil fizzled with a series of narrow trading days. The trading action became so weak that the market couldn’t even exceed the previous week’s high at 90.69 and instead produced an indecisive inside week.

To be fair, although an inside week indicates indecisiveness, it is often indicative of impending volatility, setting up the market for a breakout in either direction. With the main trend down on the weekly chart, there is still a slight bias to the downside. Most of this week’s action is going to hinge on how the market behaves when testing an uptrending Gann angle at 88.61.

For five weeks the market has been holding this angle as support. Last week the market penetrated this angle, but subsequent buying power triggered a full recovery. This week may be different as traders may be eyeing the next Gann angle below it at 82.61 as the next downside target. Coupled with this idea is the fact that the short-term range of 76.61 to 90.69 has set up a retracement zone at 83.65 to 81.99.

oil price movements

On the upside, last week crude oil hemmed and hawed a few times across a 50% price at 89.00. This price created by the range of 101.39 to 76.61 is the pivotal level that appears to be controlling the short-term direction of the market. Regaining this level and establishing support here is likely to trigger a rally into the 61.8% level at 91.92.  Following this is a pair of Gann angles at 93.39 and 95.46.

Fundamentally, the early week rally in crude oil crumbled on concerns that European plans to put an end to the Euro Zone’s debt crisis may trigger the start of an economic slowdown. Without the upside momentum to drive this market higher, it looks as if the market will begin the week with a bias to the downside.

Factors Affecting Crude Oil This Week:

• European Debt Crisis. From the way the week ended, it will be a surprise to traders if the European sovereign debt crisis came to a quick end. Floundering is the best word to describe last week’s activity although from the action in the Euro, one would think that a solution is at hand. It seems at this point in the negotiations that no matter what path officials chose, the Euro Zone economy is poised for an economic setback. Based on the intertwining of the global economy this will likely mean a worldwide recession and less demand for crude oil.

• Supply and Demand. U.S. crude oil inventories fell 6.7 million barrels to 346.4 million last week because of production shutdowns in the Gulf of Mexico triggered by Tropical Storm Lee. This accounted for the drop in imports. One imports get back in line, the supply situation may stabilize.

• Libya.  Brent crude oil traders have been waiting for several weeks for Libyan production to get back on line. Further delays are likely to underpin the market. Although production is expected to be slow at first, it should have a negative influence on pricing. Production increasing at a steadier pace than expected could have a major impact on prices.

• Brent/WTI Spread. After reaching a high near $27.00, this spread narrowed to a little under $24.00. If it resumes its uptrend, then oil prices will firm. If Brent crude oil prices fall then look for the spread to tighten, however, WTI crude oil may not fall as fast since short traders will cover their positions while unwinding the spread.

By. FX Empire

FXEmpire.com is the Forex flagship site of the FX Empire Network. The FX Empire Network provides readers with the most expert and most timely technical analyses, fundamental analyses and news-pieces; this in order to empower them to make for themselves the best possible financial decisions. The FX Empire Network’s other flagship sites include: StocksEmpire.com and CommoditiesEmpire.com.




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