The selling pressure started early this week as crude oil traders reacted to last Friday's data from Baker Hughes that showed only one oil rig was removed from service the previous week. It marked the slowest pace traders have seen after 24 consecutive weeks of declines.
Since the market has been able to sustain prices over the $50 level since the first week of April and $55 since April 14, the slowdown in rig reductions is probably a sign that drillers are getting comfortable with the price action and may be considering ramping up production over the near-term.
Prices ran into additional headwinds as the U.S. dollar rally weighed on dollar-denominated crude oil futures. Concerns over Greece's ability to make its debt payments to the International Monetary Fund and speculation that the Fed was likely to raise interest rates in September helped boost the Greenback. This pressured crude oil because it tends to reduce demand for commodities priced in dollars.
Finally, comments from Iran also helped put a lid on any rallies. Iran said OPEC was unlikely to change its production ceiling at its meeting on June 5. A combination of steady production from the oil cartel along with increased production by U.S. drillers should cap any upside action by crude oil futures over the near-term.
This week's U.S. Energy Information Administration's inventories report helped underpin the market a little, but not enough to recapture the losses from earlier in the week. The…
The selling pressure started early this week as crude oil traders reacted to last Friday's data from Baker Hughes that showed only one oil rig was removed from service the previous week. It marked the slowest pace traders have seen after 24 consecutive weeks of declines.
Since the market has been able to sustain prices over the $50 level since the first week of April and $55 since April 14, the slowdown in rig reductions is probably a sign that drillers are getting comfortable with the price action and may be considering ramping up production over the near-term.
Prices ran into additional headwinds as the U.S. dollar rally weighed on dollar-denominated crude oil futures. Concerns over Greece's ability to make its debt payments to the International Monetary Fund and speculation that the Fed was likely to raise interest rates in September helped boost the Greenback. This pressured crude oil because it tends to reduce demand for commodities priced in dollars.
Finally, comments from Iran also helped put a lid on any rallies. Iran said OPEC was unlikely to change its production ceiling at its meeting on June 5. A combination of steady production from the oil cartel along with increased production by U.S. drillers should cap any upside action by crude oil futures over the near-term.
This week's U.S. Energy Information Administration's inventories report helped underpin the market a little, but not enough to recapture the losses from earlier in the week. The EIA report for the week-ended May 22 showed that crude inventories fell by 2.8 million barrels. Traders were looking for a drawdown of 1.5 million barrels. Crude oil stocks at the Cushing, Oklahoma delivery hub also fell by 433,000 barrels.
Traders covered their short positions on the headline news, but the rebound rally stalled when they realized that U.S. crude oil production rose to 9.56 million barrels per day, its highest level in 44 years.
This week's rig count report is going to have a major effect on prices on Friday and early next week. If the rig count shows more rigs are coming back online then, coupled with the increased daily production, inventories should begin to rise. This would have a bearish effect on crude oil prices.
Technically, the market is still in an uptrend, but momentum has shifted to the downside. The market is being influenced by the bearish closing price reversal top from the week-ending May 8. Based on the short-term range of $47.46 to $63.62, the primary objective is the retracement zone at $55.54 to $53.63. Since the main trend is up on the weekly chart, short-sellers may decide to take profits on a break into this zone, and value-seekers may step in to take advantage of the three week price correction.
Bearish fundamental news continues to pile up which is fueling the sell-off. The market could accelerate to the downside through the retracement zone if the dollar continues to surge and if U.S. inventories start to rise. The OPEC decision on June 5 may be the final piece of the bearish puzzle that drives prices closer to the psychological $50.00 level.
A bearish decision by OPEC could be offset next week if the U.S. Dollar rally fails and if the rig count starts to decline again.
Unleaded Gasoline
July Unleaded Gasoline futures fell sharply this week after lingering near their yearly high for three weeks. The price action suggests that investors finally reacted to the inventories that had been running at the highest seasonal rate in over 10 years.
Although recent declines have been narrowing the surplus, investors may be feeling pressure from the drop in crude prices and the ample supply of crude oil. This week's EIA report showed that gasoline stocks fell by 3.3 million barrels, compared with estimates of a 429,000 barrel drop. This potentially bullish news, however, wasn't strong enough to stem the selling pressure.
Technically, the market is in an uptrend, but feeling pressure because of the closing price reversal top chart pattern on May 6. The first downside objective is $1.8776, followed by the primary objective at $1.8078 to $1.7426. Since the trend is up, technical buyers may come in to defend the trend if the market breaks back into the target prices.
Gasoline will rally if enough buyers come into the market and if crude oil prices recover. If buyers fail to show and the crude news continues to be bearish then look for the selling pressure to continue down towards 1.6679, putting the uptrend in jeopardy.
Exxon Mobil (XOM)
Despite relatively firm crude oil and gasoline prices, Exxon Mobil (XOM) continues to weaken. The stock is even trending lower while the major stock indices hover near all-time highs.
The main trend is down on the weekly swing chart. The trend will turn up when $90.09 is taken out. The short-term range is $82.68 to $90.09. Its retracement zone at $86.39 to $85.51 is currently being tested. Trader reaction to this zone will set the tone of the market over the near-term.
Overtaking $86.39 will signal the presence of buyers. This could create enough upside momentum to challenge the bearish downtrend line and the top at $90.09.
A sustained move under $85.51 will be a sign of weakness and renewed selling pressure. This could lead to another test of the 52-week low at $82.68.
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