Crude oil takes a hit

On Wednesday, crude oil (NYMEX:CLJ14) lost 2.27% as tensions cooled in Ukraine and U.S. supply data missed investors’ expectations. Because of these circumstances, light crude erased all its gains from Monday's jump and dropped below $101 per barrel.

Yesterday, soft U.S. service-sector data weakened the price of light crude and pushed it below $103 per barrel. The ADP nonfarm payrolls data showed that the U.S. private sector added 139,000 jobs in February, well below expectations for an increase of 160,000. Additionally, the ISM's purchasing managers' index fell to 51.6 in February from 54.0 in January (while analysts had expected a drop to 53.5 in February). At this point, it’s worth noting that February's PMI is the lowest since February 2010.

Later in the day, the U.S. Energy Information Administration showed in its weekly report that U.S. crude oil inventories rose by 1.4 million barrels in the week ended Feb. 28, missing expectations for an increase of 1.3 million barrels. Although this increase was largely in line with market expectations (and the price of light crude declined only slightly from its prior level after the report's release), distillate stockpiles (which were expected to fall by 1.1 million barrels but instead rose by 1.4 million barrels) disappointed investors and sent crude oil to its lowest level in more than two weeks.

Trading position (short-term): In our opinion no positions are justified from the risk/reward perspective.


Quoting our last Oil Trading Alert:

"Light crude closed the day below February high, which is not a positive signal ... when we factor in the current position of the indicators, it seems that further deterioration is just around the corner ... the RSI and Stochastic Oscillator generated sell signals, while the CCI is very close to doing it. If oil bulls do not trigger a corrective upswing today, crude oil may extend losses and drop to the upper line of the rising trend channel."

 

 

Looking at the above chart, we see that although the buyers tried to push the price higher, they failed, which triggered a sharp decline in the following hours. With this downswing, crude oil not only dropped to the upper line of the rising trend channel, but also reached the December high. If this support line is broken, we will see further deterioration and the first downside target will be the lower border of the rising trend channel, which is slightly above the 38.2% Fibonacci retracement level based on the recent rally (which corresponds to the 200-day moving average at the moment). Looking at the position of the indicators, we see that the CCI generated a sell signal (while the Stochastic Oscillator declined below the level of 80), which supports sellers and suggests that the bearish scenario is likely to be seen in the coming day.

Having discussed the current situation in light crude, let’s take a look at WTI Crude Oil (the CFD).

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