On Thursday, crude oil moved a bit higher as oil investors turned their attention to the North Sea supply disruption. Although the price of black gold increased, the technical picture of the commodity doesn’t bode well for oil bulls. Why? We invite you to check our Oil Trading Alert. Have a nice read.
Yesterday, crude oil came back above $57 as oil investors focused on the Forties pipeline, which carries North Sea oil to Britain. Nevertheless, we should keep in mind that the above-mentioned disruptions will physically mostly affect the North Sea region. In other words, we think that the shale drilling and the last week increase in the U.S. production (which approached the output levels of top producers - Russia and Saudi Arabia) are more important for the price of light crude. Therefore, in our opinion, it is worth waiting for today's Baker Hughes report before we get excited about yesterday's increase and its “bullish” implications. Having said that, let’s examine the technical picture of crude oil (charts courtesy of http://stockcharts.com).
Crude oil’s technical picture
Looking at the daily chart, we see that crude oil approached December lows, which encouraged oil bulls to act. As a result, black gold rebounded slightly, but did this “increase” change anything in the short term?
In our opinion, it didn’t and there are several reasons for this assumption. Firstly, light crude remains in the blue declining trend channel, which means that as long as there is no breakout above the upper border of the formation, another bigger move to the upside is not likely to be seen.
Secondly, the commodity is trading below the upper line of the black rising trend channel, which means that the verification of the earlier breakdown and its negative impact on the price are still in effect.
Thirdly, the bearish engulfing pattern continues to block the way to higher prices, which doesn’t bode well for oil bulls. As a reminder, how can we interpret this candlestick formation from the psychological point of view? Those traders, who had long positions decided to close them after an increase in the upper line of the trend channel, which resulted in a decline. Those who joined the last part of the upward move didn’t withstand the pressure and began to close their positions in fear of losses, which caused that the price of crude oil continued to fall.