Oil Extends Slide to a Fresh 11-Week Low

On the first day of a fresh trading week, WTI crude oil extended last week’s losses and dropped further below $44.00 handle to trade close to a two-month low as renewed worries about a global supply glut continue to weigh on investor sentiment. Crude oil is trading at 43.91 down 0.71%.

On Friday, oil prices fell after industry group Baker Hughes report showed US oil rig counts climbed for a fourth straight week by 14 to 371, also marking the seventh weekly increase in the previous eight. Rise in the number of active US oil rigs clearly indicated that produces were tempted to reopen the rigs following the recent rally from February’s multi-year lows around $25/barrel mark, fueling speculation that domestic production is set for a rebound in the coming weeks.

Moreover, prospects of increasing Libyan crude oil supplies further added to the ongoing worries of global oversupply. Meanwhile, buoyant sentiment surrounding the US Dollar also weighed on dollar-denominated commodities – like oil. Nevertheless, crude oil prices finally settled around $44.00/barrel mark and recorded a loss of around 4% for the week.

Going forward, this week’s FOMC and BOJ monetary policy meeting, on Wednesday and Friday, would be key event risks for the commodity. Although the US Federal Reserve is not expected to hike interest rates this time but market participant would closely scrutinize the statement in order to see if the Fed would be comfortable to announce such a decision in September or anytime during 2016. Currently the CME group’s Fed Fund futures are pricing-in around 40% probability of such an action in December.

Meanwhile, market players remain divided over the prospects of further monetary easing by BOJ during its meeting on Friday. However, the announcement would surely trigger a fresh bout of volatility in the global financial markets. Any disappointment from BOJ is likely to seriously deteriorate investor risk-appetite and dent demand for riskier assets – like equities and commodities, including oil.

In the meantime, oil traders will focus on this week’s API data on US stockpiles on Tuesday ahead of Wednesday’s official data for fresh signals of oil supply-demand dynamics.

Technical outlook

From technical perspective, the commodity is trading well below an important horizontal support near $44.50-40 region and hence remains vulnerable to continue drifting lower in the near-term.

On the immediate downside, $43.20 level seems to act as immediate support, which if broken seems to continue dragging the commodity below $42.00 handle, towards a previous strong resistance, now turned support near $41.80 region.

Meanwhile on the upside, $44.50-40 support break-point now turns immediate resistance. Recovery momentum above $44.50-40 resistance seems to assist the commodity back above $45.000 handle, towards testing its next major resistance near $45.45-50 region.