Oil Price Analysis: WTI fell to 200-day MA for the first time since October

The US oil prices dropped to 200-day MA support as expected. The long-term moving average has been put to test for the first time since October 2017.

At press time, WTI is changing hands at $65/barrel, having hit a low of $64.45 earlier today. The 200-day moving average (MA) is located at $64.61.

WTI took out the sideways channel support on Wednesday, signaling a revival of the sell-off from the July 3 high of $75.24 and fell more than 3 percent on the back of bearish US oil inventory report.

The US Energy Information Administration (EIA) reported a 6.8 million barrel rise in the oil inventories in the week ended Aug. 10. Reuters poll forecasted a drop of 2.5 million barrels in oil stocks.

The EIA report also showed the nation's crude imports surged by 1 million barrels a day (bpd) and its exports fell by more than 250,000 bpd. The pick-up in inventories and the surge in oil imports overshadowed the record activity at American refineries, which ran at 98 percent capacity.

Further, reports are doing the rounds that OPEC's spare capacity has also hit record lows. 

It essentially means the major producers have little room for a quick-ramp up of production. Hence, many experts believe a huge supply deficit could be around the corner, especially after November because the US sanctions on Iran are seen removing more than 1 million bpd of Iranian oil from the market.

As a result, analysts are expecting oil to rally well above $100 in less than two years. In the short-run, however, oil is seen falling below $63.00.

Daily chart

The downside break of the sideways channel and falling tops pattern, as represented by the descending trendline, indicates the bears are in control.

Further, the downward sloping 5-day and 10-day moving average (MAs) are favorably disposed toward the bears.

More importantly, the 14-day relative strength index (RSI) is holding below 50.00, but well above 30.00, indicating there is room for further sell-off in oil prices.

Consequently, oil could soon take out the 200-day MA support of $64.61 and drop towards the support of the trendline sloping upwards from the June 2017 low and Aug 2017 low, currently located at $62.90.

On the higher side, a close above the 10-day MA would invalidate the bearish view. Currently, the key short-term MA is located at $67.14.