Oil Extends Bearish Trend Despite of a Weaker Dollar

After being slammed to a three-month low, WTI crude oil found a temporary support at lower levels and bounced back to $42.00/barrel mark during Asian trading session on Thursday. Thursday’s bounce was primarily led by a broadly weaker US Dollar. However, a fresh bout of selling pressure emerged during European trading session, dragging oil prices back close to yesterday’s multi-month swing lows.
[wibbitz]bd1fdfe4c2dfc474091d18bcb4620a4fe[/wibbitz]
On Wednesday, the commodity fell over 2% and broke below $42.00 level after US government reported the first weekly increase in domestic crude oil inventories in past 10 weeks. According to the report released by US Energy Information Administration, last week crude oil inventories rose by 1.7 million barrels while total domestic crude production also scaled up by 21,000 barrels to 8.515 million barrels a day. Gasoline stockpiles were also rose by 452,000 barrels while distillate stockpiles fell by 800,000 barrels.

The commodity sank to a three-month intraday low of $41.68 after the Federal Reserve interest rates unchanged in a range between 0.25 and 0.5%. The central bank, however, showed willing to lift interest rates in September, which supported the US Dollar and weighed on dollar-denominated commodities – like oil. Prices found support at lower levels as the US Dollar started losing traction as investors remained skeptic over prospects of a Fed rate-hike in September after disappointing durable goods orders data, released earlier on Wednesday. Market players will now examine minutes of the meeting for clues about the timing of next Fed rate-hike decision.

In the meantime, attention now turns to Friday’s second-quarter GDP print, which if disappoints would diminish the prospects of further Fed rate-hike in 2016 and would boost demand for riskier assets, including oil.

Supply disruption worries like – wildfires in Canada and militant attacks in Nigeria were key factors that provided the much needed respite in oil market and assisted oil prices to recover sharply from around $26.00/barrel mark touched in February. With some of these factors already coming to an end, concerns over a global supply glut has made a comeback and is weighing on oil prices. Adding to this, fears that demand for crude might languish in the coming months might now keep any recovery in oil prices short-lived.

Technical update

Although oversold in the near-term, the commodity remains in a near-term bearish trend. A follow through selling pressure below $41.50 could immediately aim towards $41.00 round figure mark intermediate support before eventually dropping to the very important 200-day SMA support near $40.10-$40.00 psychological mark.

Meanwhile, any recovery attempts above $42.00 now seems to confront immediate strong resistance near $42.60-65 zone, which if cleared should assist extension of the recovery trend towards the next major resistance around $44.00 mark with $43.10-20 acting as intermediate resistance.