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Talking Points:
- Crude Oil Technical Strategy: Oil Looking To Push Past Key Resistance Level at $34.79/bbl
- The Offered US Dollar Further Puts Support Under Oil’s Advance
- WTI Is Starting To Divorce from Leading Risk Sentiment, Which Further Supports US Oil Bulls
Turnaround Tuesday
While starting the week on a sour note, Crude Oil jumped to its highest percentage rise since the move from the August low with Tuesday’s turnaround. Most of the attribution is being tied to the incredible weakness in the US Dollar, which dropped by its largest margin since Janet Yellen squelched hopes of a rate hike in March, which sent the US Dollar lower for 2-months before it could regain footing against other currencies. Because the US Dollar is the quoted currency in Oil, a stronger dollar buys more Oil per dollar and causes the price of Oil in dollar terms to fall. The opposite is true when Oil rises.
On the fundamental front, not a lot happened to change the attitude of the Oil market. Companies as Shell continues to see profits drop and little end in sight for cap-ex reductions as many expect a ‘Lower for Longer’ environment regarding the price of crude. However, many have been looking for a low, and the short-term low of January 20 looks like a good one if the US Dollar can continue to fall as we have seen mightily against Oil-correlated currencies like the Canadian Dollar.
The takeaway from the last 24 hours or 24 months is never to underestimate the value of the US Dollar on the price impact of Oil.
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Key Levels from Here
Last note, we shared how the recently higher low of 29.23 should hold if US Oil bulls were to gain ground. Given yesterday’s sharp move from the low of 29.38, we will look at that level to hold on a move higher from here. Resistance will remain at last week’s price high of $34.79, and if Bullish momentum is to remain at all, that price should break as well. While some view the late January move was little more than a ‘dead cat bounce,’ the continuation of US Dollar weakness could quiet their views. If last week’s price high does not hold the price down we will keep an eye on the YTD high of $38.36 to help affirm the view that January 20 was a price bottom of some degree.
Sentiment Flip Warns of Further Short-Term Upside
In addition to the fundamental and technical pressure that Oil still has on its back, the bearish view aligns with our Speculative Sentiment Index or SSI. Our internal readings of Oil are showing an SSI reading of 1.3221. We use our SSI as a contrarian indicator to price action, and the fact that the majority of traders are now bullish provides a signal that US Oil may continue lower, and attempt to break the support levels mentioned above. If the reading were to turn negative again, and the price broke back above $34.78bbl, we could begin looking for a retest of the YTD high of $38.36.
T.Y.
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