After the U.S. government shutdown and threat of a Treasury default held crude oil market participants hostage for half of October, oil speculators finally felt confident enough to test the downside of the short-term range after lawmakers reached an agreement to temporarily end the crisis.
Although interest rates plunged on the news, encouraging foreign investor to shed the U.S. Dollar, the dollar-denominated December crude oil market fell to a ten week low.
Speculators hit the market hard on the notion that the government shutdown weakened the already fragile economy, leading to a possible drop in demand for crude oil. In addition, talk is circulating that because of the possibility of another jolt to the economy, the Fed may refrain from tapering its monetary stimulus until mid-2014.
The technical picture suggests the market may be poised for further downside action. After a seven week decline from the $109.70 top, the market is now threatening to take out a minor 50% level at $100.38.
The weekly chart indicates there is plenty of room to the downside with an uptrending angle at $99.02 the first likely target. This is followed by a Fibonacci level at $98.17 and another major 50% level at $97.61. All of these price levels are capable of generating technical bounces on the daily chart so conditions could get choppy as the market tests these levels.
If there is going to be an acceleration to the downside, it is likely to occur on a…