On Friday, crude oil (NYMEX:CLM14) hit an intraday high of $101.18 supported by ongoing concerns over tensions in Ukraine. Despite this improvement, the commodity reversed and lost 0.20% as weaker-than-expected economic data from China and a stronger dollar weighted on the price. Because of these circumstances, light crude erased earlier gains and temporarily slipped below the psychological barrier of $100 once again.
Is it enough to trigger another sizable downswing?
At the end of last week, pro-Russia separatists in eastern Ukraine ignored a public call by Russian President Vladimir Putin to postpone a referendum and said they plan to go ahead on Sunday with a vote. These circumstances fueled concerns that Ukraine is descending into civil war and pushed light crude to around $101 (as a reminder, in recent weeks, worries that higher tensions between Russia and the West over the unrest in Ukraine could lead to further sanctions, which could crimp Russian oil exports have kept oil prices above the level of $100).
In reaction to this news, oil investors locked in their profits and jumped to the sidelines to await fresh news from Ukraine. As a result, the price of crude oil reversed and declined.
An additional bearish factor that weighted on investors’ sentiment was soft Chinese pricing data released earlier on Friday, which showed that China's April consumer price index rose 1.8% year-on-year (missing expectations for a 2.0% increase). Additionally, the country's producer price index fell 2.0%, while analysts had expected a 1.8% drop.
On top of that, a stronger dollar pushed oil prices down as well. As is well known, crude oil is traded in dollars and a strong greenback makes the commodity more expensive to buyers using other currencies.
Once we know major fundamental factors that affected the commodity on Friday, let’s find out what impact did they have on the technical picture of crude oil (charts courtesy of http://stockcharts.com).
Although crude oil gained 0.15% in the previous week (for the first time in three weeks), the medium-term situation hasn’t changed much as the commodity still remains below the lower border of the triangle. Therefore, the bearish scenario from our Oil Traing Alert posted on Apr. 30 is still up-to-date:
(…) if the commodity extends losses and drops below the psychological barrier of $100, we will likely see further deterioration and a drop even to around $95, where the medium-term support line (based on the June 2012 and January 2014 lows) is. At this point, it’s worth noting that the CCI and Stochastic Oscillator generated sell signals, which suggests that another attempt to move lower should not surprise us.