Crude Oil is now trading at levels near to the 2009 lows. As the world economy is sluggish but nowhere near to the paralysis caused by the 2008 credit crunch it is safe to assume that the levels are oversold both in fundamental and technical sense. The supply of oil has increased as the US shale oil has entered the market and the Saudis have decided to defend the market share rather than price but the ever growing world population means that the limited oil resources have to be shared by an increasing number of consumers. As the population and its wealth grow the consumption of oil can only go up. The passenger trends in air travel are a good example of this. According to the International Air Transport Association the global airline industry is expected see a 7% growth in passenger traffic in 2015 with the average annual growth rate being at 5.5%. This energy intensive industry will therefore be carrying almost 30% more customers in 2020 and is likely to hedge aviation fuel costs at the current price levels. As the global GDP is still expected grow by 3.2% in 2015, it is likely that other likely hedgers include the businesses in other forms of transport and cargo business as well as mutual funds, hedge funds and other institutional investors.
US Dollar index (inverted) and Crude Oil, Daily
As the above chart very clearly shows the price of oil has been inversely correlated with the DXY, US Dollar Index. The blue line is the inverted DXY while the black line is the price of Crude Oil. Now that the trend in DXY is getting showing signs of indecision the Crude Oil price has become more volatile.
Crude Oil, Weekly
The price is fluctuating relatively close to 2009 low and is showing strength by closing last week above the last four weekly highs. This has not happened since last summer. Also, we now have a weekly pivot candle with two higher lows on each side for the first time since the August 2014. This and last week the price has established a new support level at the proximity of the high (48.35) of this pivot candle. The nearest resistance is still at the 53.60 area. Price has traded inside the lower 1.5 stdv Bollinger band for almost three weeks, yet another long term bullish sign. On the bearish side we have a potential long legged Doji candle (looks like a cross) with open and close currently fairly close to each other. While the previous candle showed strength with open way below the closing price the current candle cannot give the same indication unless we will see a strong move higher from current levels. This would in the current context have short term bearish indications.
Crude Oil, Daily
After breaking out of the descending regression channel the price of oil is now moving sideways between the resistance at weekly low at 53.60 and the high of weekly pivot candle at 48.35. We now have a higher high, and two higher lows at 48.35 support which suggests that the buyers are willing support price at higher levels after each retracement from the 53.60 resistance level. If this reoccurs without price creating a lower high it will create pressure against the sellers at the 53.60 resistance area.
Crude Oil, 240 min
The price is now at sideways range in 4h chart and has found support twice from the level just above the 61.8% Fibonacci level. I suggested in my previous analysis that we could look for intraday buy signals at approx. at this level. Now the price is at the upper Bollinger bands and Stochastics (and RSI) is indicating that it is becoming overbought.
The levels close to previous market low are always interesting and a potential support area. Now that the price is close to 2009 lows it is likely that several hedgers are interested in stepping in. This is very likely already happening as we are seeing many bullish signs in the weekly picture: 1) a close above the last four weekly highs for the first time since the last summer, 2) a weekly pivot candle with two higher lows on each side (the first time since the August 2014), 3) the price has traded inside the lower 1.5 stdv Bollinger band for almost three weeks (again the first occurrence since the last summer). Buyers are taking the upper hand. On the bearish side the weekly chart might create a long legged Doji candle (looks like a cross) with open and close currently fairly close to each other. While the previous candle showed strength with open way below the closing price the current candle cannot give the same indication unless we will see a strong move higher from current levels. This would have short term bearish indications and mean that probabilities for move closer to the bottom end of the range would increase.
Chief Market Analyst
Disclaimer: Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of purchase or sale of any financial instrument.