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KUALA LUMPUR: When the US light sweet crude oil futures for the spot month, also known as West Texas Intermediate (WTI) resumed the downward spiral in a rapid pace following a breakdown from the US$30 psychological level in January, many people pressed the panic button and set their minds for a lower-for-longer price scenario.
The downtrend continuation, driven by the persistent supply glut and slowing demand spelt more pains for crude-producing nations then and threatening the survival of oil producers.
Against the engulfing bearish backdrop, analysts warned of a US$20 a barrel while others said liquidation pressure by big funds will not relent until it reaches US$10 a barrel.
Some gave up forecasting where is the bottom.
On Jan 12, we saw support at the US$25 level for the black commodity.
WTI touched a low of US$26.05 a barrel during intra-day session on Feb 11, the worst level in more than a decade.
But just when it looked frail and defenceless, also in great danger of slipping below the US$25 line, market sentiment turned for better in the wake of renewed buying momentum and short-covering activity, apparently, boosted by news about possible discussion on oil output cut between the Organisation of Petroleum Exporting Countries (Opec) and non-Opec members.
Thereafter, prices rallied on follow-through interest while traders continued to play the “output cut” theme song.
US crude settled at the day’s peak of US$42.17 a barrel on Nymex on Tuesday, the highest level in more than four months on renewed buying momentum, driven by speculations that top producers Russia and Saudi Arabia have reached a consensus to freeze output ahead of the much-anticipated producers meeting in Doha this weekend.
In post-settlement, WTI drifted marginally lower on electronic trading, flirting around the US$41.70 level in Asia time zone this morning owing to an apparent profit-taking, as concerns about a larger-than-expected built-up in US crude stockpiles outweighed news about Russia and Saudi had reached an agreement on an oil output cap.
Based on the daily chart, crude oil prices had chalked up a hefty gain of US$16.12, or 61.9% from the ebb of US$26.05.
But the more important development was crude oil prices had penetrated the uppermost 200-day simple moving average line (see the chart) on the fourth attempts.
It is significant, as yesterday’s breakthrough was the first since the long bearish phase started in late June 2014.
Theoretically, the major breakout suggests that the worst in crude oil may be over. Baring any nasty news from the meeting in Doha this weekend, oil bulls are poised to sustain the upward thrust on follow-through interest.
Another “golden crossings” of the 50-day SMA against the 100-day SMA over the next few days will further add to investors’ optimism.
Elsewhere, the promising pictogram on the technical indicators also suggest a steadier trend ahead, but a “V-shape” recovery is unlikely, at least for now, as crude stockpiles remain very high.
Initial target is envisaged at the US$50-US$51 area. The next upper strong barrier is expected at the US$60-US$63 band.
http://www.thestar.com.my/business/business-news/2016/04/13/worst-for-crude-oil-prices-may-be-over-after-major-breakout/
