Crude Oil Update – Sellers Driven by Stronger Dollar, Supply Concerns

U.S. April West Texas Intermediate crude oil futures are trading lower early Wednesday. A stronger dollar is helping to curtail demand for the dollar-denominated commodity, putting pressure on the market.

Yesterday, crude oil surged to a seven-month high on optimism over OPEC’s deal with other producers to curb output, trim the global supply and stabilize prices. Record long open interest by hedge funds and commodity funds is also seen as providing support.

Even with OPEC’s reduction in supply, the inability to follow-through to the upside and sustain a rally, may be suggesting that investors are starting to doubt that the plan will be sufficient enough to translate into large inventory draws by the second quarter of this year.

Later today, the American Petroleum Institute will release its latest inventories report. Analysts and traders are forecasting a 3.325 million barrel rise in crude oil stockpiles for the week-ending February 17. Gasoline inventories are expected to come in at 1.625 million barrels and distillates are expected to post a 1.075 million barrel draw down.

The U.S. Energy Information Administration’s report on inventories is being delayed until Thursday due to Monday’s U.S. federal holiday.

Technical Analysis

The main trend is up according to the daily swing chart. The trend turned up on Tuesday with the rally through $54.55. The new main bottom is $53.12.

The main range is $56.92 to $51.86. Its retracement zone $54.39 to $54.99 is the primary upside target. The upper level of this zone essentially stopped the rally at $55.03 on Tuesday.

The close under the zone and subsequent follow-through selling under the zone is also a sign of increasing selling pressure. Traders should treat the 50% level at $54.39 and the Fib level at $54.99 as resistance.

Forecast

Based on Tuesday’s close at $54.33 and the earlier price action, the direction of the crude oil market today is likely to be determined by trader reaction to the 50% level at $54.39.

A sustained move under $54.39 will signal the presence of sellers. This is followed by a pair of angles at $54.11 and $53.87. The latter is the trigger point for an acceleration into $53.50. This is followed by the main bottom at $53.12.

Overtaking $54.39 will indicate the presence of buyers. This could fuel a drive into the long-term downtrending angle at $54.80. This is followed by the Fib at $54.99 and yesterday’s high at $55.03.