Crude Oil Technical Analysis

This analysis is of light sweet crude oil CME Group

Crude oil has been following its upper channel and been edging upwards since July. While daily fluctuations are common for oil due to political developments, long term technical analysis seems more stable for oil. The MACD indicator has produced bullish signals twice without a bearish one, signalling a strong upward trend. Stochastic seems to be more volatile; it has produced 8 bullish and bearish signals since July, at least 3 of which have been unsuitable for profitable trades. However, it reasserts the bullish trend as it has been edging upwards throughout August. Right now the slow Stochastic sits at 92.92, signalling that the price may be overbought. However, RSI is at 67.92, suggesting that the price may not be overbought until another week or more.

The bullish trend is stronger on the weekly chart. This can be seen as MACD produced a bullish signal at the start of August, and since oil has been trading sideways since 2011, it might be able to reach between 100 and 107 by the end of this year. The Stochastic indicator is also ascending, and its overbought signal may not come until a few months.

Fundamental: Crude oil is facing pressures both on the upside and the downside. Bullish reasons include:

-          Crude oil demand is seasonal and has risen significantly in the summer

-          Sanctions on Iran’s oil continue to be enforced

Pressures that are forcing a lower price are:

-          Domestic crude oil production has increased in the Bakken and the Eagle Ford regions

-          The US Dollar is being strengthened. Since oil is globally priced in the USD, a rising dollar  decreases oil prices in the US relative to other countries

However, there isn’t any latest news that’s going to significantly affect oil prices in either direction. Oil prices were slightly affected by UN’s decision to exit Syria after a failed 4 month vision. Worries about the Middle East’s political situation are keeping prices high but that is being done so without any new updates.

On the European side, the Bundesbank statements indicate that there are still disagreements about the Euro crisis. Last week, it seemed that an agreement would be made soon, and this disappointment has caused a small sell-off of oil. News from Europe could be important for crude oil.