Bears in Control as Crude Oil Breaches Technical Support Levels



By Chinedu Okoye 


Crude Drops Below Support:

Crude dropped this week to levels unseen in the past three Friday's close. BRENT ended the week to $71.05 just $0.05 above critical support levels prescribed last week ($71), and WTI $0.05 below support at $66.95.

(WTI FUTURES in the week)

Though both started the week fairly highly bid, they both ended in the red with US Crude drawing down 4.8% from last weeks close more than BRENT's 3.81%, taking the spread to $4.10.

 (BRENT FUTURES in the week)

The average of both benchmark is also lower and right at the $69 support range.


CRUDE PRICE MOVEMENTS (at the close from October 25th through November ):   
                  25/10    | 01/11    | 08/11.      |15/11
BRENT:        $76.05      $73.65    $73.87    $71.05
WTI:             $71.10      $69.64    $70.38    $66.95
AVG:            $73.78      $71.65    $72.13    $69
SPREAD:      $4.65        $3.61      $3.49      $4.10


An Inflection Point?

Sitting right on the verge of key technical support and resistance levels, and a widening of the spread could he indicatibe of an inflection point to new lows, or back up towards the resistance level, on higher bids.

The market could be reacting to an expected supply glut, or further slowdown in economic activity that would affect demand. We however expect a retracement back within range, even though pressure on Crude prices may still be well on the cards.


Zero Equilibrium Expectations:

Our expectations is based on the spread widening, which usually takes crude in the opposite direction when overbought or oversold. This was observed as the chart below shows in the week ended October 25th where Crude surpassed resistance levels ($75 and $71 for BRENT and WTI respectively), and spreads surpassed $4 to $4.65.



Given that the last time spreads rose above its resistance at the close, Crude Prices went the other way (representing an overbought situation), we interpret this weeks decline as an oversell in the market based on the widening of the spread, and expect prices to recover in the following week or two.

Technical Support - Resistance Levels:
We hold key technical support -; resistance levels hold at;

BRENT: $71 - $73
WTI:      $67 - $69
AVG:     $69-  $71
SPREAD:$3-$4

Should prices hold close to $71 (BRENT) and $67 (WTI), or below in the next two trading weeks, at close it might suggest a recalibrated market positioning based on expectations, taking crude to lower levels and demanding a reconstruction of new technical levels.

For now we still view these positions as a buying opportunity at the beginning of the new trading week (November 18). 





DISCLAIMER: THIS IS NOT INVESTMENT ADVICE,ZERO EQUILIBRIUM COMMODITY ANALYSTS AIM TO GIVE INSIGHTS TO STIMULATE THINKING RATHER THAN PREDICT PRICES. WE ARE LONG BRENT AND WTI FUTURES BY PROXY.

Comments

Post a Comment

Popular posts from this blog

Exchange Rate Policy for Naira Stability: A Case for a Crawling Peg.

By Chinedu Okoye  Naira Weaken on Bleak Macro Outlook: The Naira continues to experience pressure on the NAFEM even as the Central Bank intervened using the retail dutch auction system to supply FX directly to verified customers. There has continued to be low FX turnover suggesting that investors are still wary about Naira Fundamentals. The Oil and Gas sector is marred by challenges and the country periodic debt obligations to settle. With T-Bills repayments due as early as the first quarter of 2025. The National Oil Company (NNPCL) is also faced financial distress, with debts up to $6 billion. The Naira pressure is expected to continue as long as the above issues linger, especially in its Oil and Gas sector as fuel prices (largely imported at the moment) and exchange rate pressures are interconnected. Prior Zero Equilibrium Position: As posited in our prior paper referenced below, to stabilize the Naira the monetary authorities might have to tweak its exchange rate policy. We sugg...
Read more

Why Gold is sending a warning, and could well be in its way to $3000/oz.

Image
By Chinedu Okoye  Gold and Treasuries are usually negatively correlated with interest rates. However in the past 2+years of the hiking cycle, Gold has climbed consistently higher against the Greenback. One explanation could be the Central Bank purchases experienced within the same period, the uncertainties and safety flight due to geopolitical tensions and uncertainties about the economy post covid. Investors and Central banks hedge has kept the yellow metal afloat, up and rising. And we breakdown the metals 5 years and 1 charts, to explain where we get our insights as to why we believe the yellow metal is headed for $3000/oz. And in addition to that, sending a clear warning to the markets that the rate cuts may not provide the boost in economic activity as expected. Gold in the past Five Years: There has been a steady rise in the value of the yellow metal from 1535.06/oz to 2486.10. When the Fed begun it's hiking cycle in March 2022. Feds Funds Rate was raised from the...
Read more

CBN POLICY: DE-DOLLARISATION THROUGH CURRENCY SWAPS AS A PRUDENTIAL POLICY

Image
By Chinedu Okoye Summary: • The Naira has gained some relief as the Central Bank successfully cleared the $10 billion FX forwards owed to banks. • Demand dynamics remain unchanged due to low FX supply, and the stability is expected to be short-lived. • Reducing dependence on the US dollar for international transactions and BRICS nations' de-dollarization push offer an opportunity to diversify reserves. • Currency swap instruments between the Central Bank of Nigeria and the People's Bank of China, and between the CBN and the Reserve Bank of India could stabilize the Naira without committing dollar resources to acquire these currencies. Taming Market Demand for US Dollars: The recent efforts by the Central Bank of Nigeria to unify exchange rates by floating the Naira to "reflect market realities" have led to a steep fall in the currency against the greenback.  While the Naira received a boost of $10 billion from the securitization of the government's NL...
Read more