Crude oil faces major headwinds

Both the major crude oil contracts are trading higher today despite the lack of any significant data from Asia or Europe, and the stronger dollar. Today’s gains therefore appear to be almost entirely driven by supply factors after Libya’s el-Feel oilfield was shut yesterday, resulting in a drop of 150 thousand barrels of crude output. Most of the country’s oil ports, including El Sharara, which has an output capacity of about 340,000 bpd, have been shut due to the on-going protests from the rebels. As well as Libya, there are concerns about future demand for Russian oil as their involvement in Ukraine has led to retaliatory response from the EU which along with Ukraine have agreed to reduce their energy dependence from the former Soviet Union. Meanwhile the rallying copper prices in response to the diminishing Chinese demand concerns, is also helping boost the sentiment.

Last week, Brent managed to hold above a long-term bullish trend line which came in just below the $105.50 mark. As a result, financial speculators may have abandoned some of their bearish positions in the London-based contract. However the upside has so far been fairly limited, in part due to the sheer number of resistance levels seen ahead which may have discouraged some of the bullish speculators from entering the market for now. The $107.50 level, for example, has already been tested unsuccessfully twice in as many days. Even if $107.50 is broken, more resistance is seen around the 50 and 200 day moving averages of approx. $108.00 and $108.50, respectively. Some traders may therefore be waiting on the side-lines until either some or all of these resistance levels are broken before joining the bulls, or the join bears if the key $105.40 support is taken out.

Source: FOREX.com. Please note, this product is not available to US clients.

Yesterday saw WTI crude oil manage to hold its own above the 50-day moving average support of $99.30 after initially running into resistance at $100.25 – a level which was formerly support. The US oil contract is again pushing towards that high today, with a potential test of the 200-day average at $100.40 also looking increasingly likely. However, even if it breaks above the 200-day average, the upside could potentially be capped by the $100.70-$101.00 resistance range, which was previously support.  Meanwhile if WTI starts to head lower once again and potentially close the session below the 50-day moving average ($99.25), then we could well see another leg lower in the price of US oil over the coming days.

Source: FOREX.com. Please note, this product is not available to US clients.