Crude oil support fell apart last week, leading to a price collapse. The selling momentum was strong enough to drive the market into a new low for the year. Some traders are calling $40.00 support, but this is merely a psychological level. Based on the building of a bearish fundamental picture, it looks as if this market is headed a lot lower than $40.00. At this time, the price level is not as important as the chart pattern and the price action. And the chart pattern and price action indicate that sellers are in control and buyers are scarce.
Throughout all of February and some of March, hedge and commodity fund investors were giving the market the benefit of the doubt that a rally would take place because of the number of producing wells being shut down by the U.S. oil companies. They were also holding out hope that OPEC would begin to feel pressure to reduce production, but these scenarios never panned out. U.S. oil inventories continued to build and OPEC actually increased production as well as prices for U.S., Asian and European customers.
With production rising, all it took was the seasonal shutdown of refineries for maintenance and the switchover to spring and summer gasoline blends to reduce demand and raise inventories further. In addition, this created storage issues at the key Cushing, Oklahoma storage facility which led to it nearing full capacity. On top of this, contango pricing or the buying of nearby futures contracts and the sale…