Fundamental Analysis
November Crude Oil futures are in a position to finish flat to slightly lower this week, however, the chart pattern suggests that momentum is building to the downside. The market is pressing a short-term retracement zone which is slowing down the selling pressure. Additionally, buyers appear to be using this area as a support zone. The short-term direction of the market is likely to be determined by trader reaction to this zone.
To be more specific, crude oil has straddled the 50% level of the retracement zone at $44.28 the last four weeks. This is essentially balancing action which is being caused by both bullish and bearish fundamentals. In other words, traders aren't sure which way they want to take the market although this week's fourth-consecutive lower close suggests there is a growing bias to the downside.
This week's Energy Information Administration inventories report supports the conclusion that traders are facing conflicting fundamentals or may be waiting for more definitive data that supports the case that a longer-term trend is developing.
On Wednesday, September 23, the EIA's report for the week-ending September 18 showed a larger than expected drawdown. Crude oil stocks came in down 1.9 million barrels. Traders had priced in a 1.0 million barrel decline. This was the bullish news.
This bullish news was offset by a larger-than-expected build in gasoline stockpiles. According to the EIA, gasoline stockpiles rose…
Fundamental Analysis
November Crude Oil futures are in a position to finish flat to slightly lower this week, however, the chart pattern suggests that momentum is building to the downside. The market is pressing a short-term retracement zone which is slowing down the selling pressure. Additionally, buyers appear to be using this area as a support zone. The short-term direction of the market is likely to be determined by trader reaction to this zone.
To be more specific, crude oil has straddled the 50% level of the retracement zone at $44.28 the last four weeks. This is essentially balancing action which is being caused by both bullish and bearish fundamentals. In other words, traders aren't sure which way they want to take the market although this week's fourth-consecutive lower close suggests there is a growing bias to the downside.
This week's Energy Information Administration inventories report supports the conclusion that traders are facing conflicting fundamentals or may be waiting for more definitive data that supports the case that a longer-term trend is developing.
On Wednesday, September 23, the EIA's report for the week-ending September 18 showed a larger than expected drawdown. Crude oil stocks came in down 1.9 million barrels. Traders had priced in a 1.0 million barrel decline. This was the bullish news.
This bullish news was offset by a larger-than-expected build in gasoline stockpiles. According to the EIA, gasoline stockpiles rose to 59 million barrels, which according to the government was the highest since 2011 for this time of year. Additionally, refiners scaled down their utilization rates.
Looking ahead, the near-term fundamentals look bearish which is being reflected in the chart action. The biggest concern is likely to be about weak gasoline consumption from the fall season, which began on Wednesday, and continues through the winter. Upcoming maintenance at most U.S. refineries, which means less crude processing, will also be a worry.
Over the near-term, gasoline may see inventory dips because of the scheduled maintenance while crude oil inventory may see increases. If the "push me, pull you" fundamental data continues then prices are likely to continue to straddle the 50% level at $44.28 this week.
November Crude Oil
Technical Analysis
Technically, the main trend is down according to the daily swing chart. The key resistance is a pair of 50% levels at $50.69 and $51.77. The recent top at $50.04 stopped just short of this area.
The short-term range is $38.51 to $50.04. Its retracement zone at $44.28 to $42.91 is currently being tested with the 50% level being most important.
Trader reaction to this retracement zone will likely determine the direction of the market over the near-term. Four consecutive weeks of successful tests of the 50% level at $44.28 suggest a balanced market. Therefore, we have to conclude that a sustained move over this level will indicate the presence of buyers and a sustained move under $44.28 will signal the presence of sellers.
November Unleaded Gasoline
Like the November Crude Oil chart, November Unleaded Gasoline futures are also closing the week with strong momentum to the downside. And like the crude chart, the market is testing a key short-term retracement zone.
Based on the price action the last two weeks, the near-term direction of the market is likely to be determined by trader reaction to $1.3371 to $1.3039.
November Natural Gas
November Natural Gas futures plunged to a new low for the year on a massive inventory build. According to the EIA, natural gas stocks increased by 106 billion cubic feet for the week-ending September 18. Traders were looking for a storage injection of around 97 billion cubic feet. The five-year average for the week is an increase of around 83 billion cubic feet, and last year's addition for the week was 96 billion cubic feet.
Mild weather over the near-term is expected to cut into demand and injections are expected to build, leading to forecasts of even lower prices.
The winter temperature forecast is also bearish for natural gas with El Nino conditions expected to produce above average temperatures across the Midwest which should cut into normal seasonal demand.
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