On Wednesday, crude oil lost 1.48% as the reported resumption of Libyan crude production and the EIA weekly report on U.S. inventories weighed on the price. As a result, light crude hit its lowest level since June 5 and dropped below the next downside target. Does it mean that oil bulls lost ground?
Yesterday, crude oil started the session lower after Libya announced the resumption of operations at its main oil fields. However, the price decline accelerated after official weekly U.S. oil inventories data reflected a number of bearish factors. Although the U.S. Energy Information Administration reported that U.S. crude oil supplies declined by 2.4 million barrels in the week ended July 4, beating expectations for a decline of 2.2 million barrels, the report also showed a 600,000-barrel increase in the amount of refined motor gasoline in storage during a week when inventories were expected to fall in response to strong holiday driving demand. As a result, light crude hit a 5-week low of $101.85. Will the commodity drop any further from here? Let’s check what can we infer from the charts.
The medium-term outlook has deteriorated slightly as crude oil still extended losses and moved away from the upper line of the blue triangle. Taking this fact into account and combining it with the current position of the indicators, which still favors oil bears, we are convinced that our last commentary is still up-to-date:
(…) crude oil will extend the current correction and the initial downside target will be around $101.60, where the June low is. At this point it’s worth noting that slightly below this level is a strong support zone created by the 50-week moving average (currently at $101.26) and the lower line of the trend channel (and lower border of the blue triangle), which may pause further deterioraion.