December crude oil futures rose this week, driven higher by oversold technical conditions, uncertainty over the Fed’s timing of its plans to taper monetary stimulus and a smaller-than expected rise in crude oil supplies.
According to a few technical indicators and oscillators, crude oil had reached oversold levels. Reading these charts is not an exact science, however, traders respect the numbers because they often are associated with surprise rebounds and bear-traps. Given the prolonged move down in terms of price and time, profitable short-sellers want to avoid getting caught short on the wrong side of the market at current price levels. This helped crude oil build a little support base on the daily chart which could turn into something bigger on the weekly chart if momentum begins to shift to the upside.
Uncertainty over the Fed’s timing of its plans to taper its $85 billion in monthly monetary stimulus could also be underpinning crude oil. Traders may feel they have successfully priced in a stronger dollar due to the possibility the Fed will begin tapering its stimulus as early as December rather than waiting for April 2014. A stronger-than-expected Gross National Product figure on November 7 failed to give prices a boost, but the latest U.S. Non-Farm Payrolls data, set to be released on Friday, November 8, is expected to be a market moving event.
This week, oil futures rose following weekly data from the U.S. Energy Information Administration showing that crude oil supplies rose less than expected. Crude oil stockpiles were up 1.6 million barrels for the week-ended November 1. Traders were looking for an increase of 2.5 million barrels.
Technically, December crude oil is in a well-defined downtrend on the weekly chart despite this week’s low volatility and narrow trading range. These often serve as signs that a transition is taking place which could lead to the start of a counter-trend move.
The nearest support this week is an uptrending angle from the $85.52 bottom at $93.02. This is followed by another slower-moving angle at $89.27. The market is not expected to drop from one angle to the other unimpeded. A pair of main bottoms at $91.05 and $90.69 could slow down the rate of descent.
On the upside, crossing over to the bullish side of the major Fibonacci angle at $94.76 will be a sign that the buying is greater than the selling at current price levels. Once support is established at this price, the market may take a run at the 50% level at $97.61.
Unless there is a tremendous shift in volatility, look for crude oil to establish a small support base and to straddle $94.76 this week. It still may be in a weak position because of the bearish fundamental outlook, but it looks as if this bad news seems to have been baked into the market and that the next surprise is likely to be to the upside.