Crude oil prices took another dive today which saw WTI reach a fresh six-year low. As before, it is the relentless growth in US crude inventories that is continuing to exert strong pressure on oil prices. Wednesday’s supply data from the US Energy Information Administration (EIA) showed stocks increased by 4.5 million barrels in the week to March 6, which was meanwhile the ninth consecutive weekly increase. During these past nine weeks alone, crude stocks have surged by a whopping 66.5 million barrels to repeated all-time highs. It will be interesting to watch the EIA’s data for last week, due on Wednesday afternoon, and see if there was another sharp increase in oil stocks. If seen, this could simply exacerbate the situation and lead to further price declines. Although a decrease in inventories may provide some breathing space, we will need to see a sustained period of destocking for prices to recover meaningfully. Thus, the pressure may remain for some time yet.
From a technical point of view, WTI crude oil has taken another step towards the $40 level today after breaking below the January low of $43.55. Although we haven’t seen a significant follow-through in the selling pressure thus far, this could change as we progress through today’s session and the rest of the week. Only a close above resistance at $45 would invalidate this bearish technical setup. So unless that happens, the sellers’ confidence – and their bearish bets – may increase further. As such, WTI prices may be driven further lower in the near term. Significantly, there is not much support seen now until about the $40 mark. As well as psychological level, this is where Fibonacci exhaustion levels of two separate price swings converge. These are the 127.2% extension of the corrective up move from late January, at $40.65/70, and the 261.8% extension of the upswing from late February, at $40.40.
Brent meanwhile has broken below its 50-day moving average at $55 and is dropping towards the next logical support level of $52.00. As can be seen on the chart, this is a resistance-turned-support level and also corresponds with the 61.8% Fibonacci retracement of the upswing from the January low. Beyond $52, the next level of support is the psychological $50 mark and if that breaks then the January low at $45.15 could be the next target for the bears. The key resistance level is the old support at $56.20.
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