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Oil Trading – Oil Market Analysis 18th August 2009

Oil Trading Chart - WTI Daily Oil Prices Chart 18th August 2009

Yesterday’s price action on the daily oil prices chart was interesting for a number of reasons: first the candle created was a “hammer” with a deep lower wick and small body, suggesting that  the oil bulls overcame the bears in yesterday’s oil trading session thereby helping to prevent a further decline in oil prices.  Next the close of the oil trading session found support from the 40 day moving average and as a result this combination of technical factors suggests that we should see oil prices attempt to rise in early oil trading today.  However, any rise may be short lived given recent equity market falls which has seen the Shanghai Composite lose almost 6% and the S&P500 almost 2.5% with a consequent rise in the US Dollar as traders and investors flip flop between risk appetite and risk aversion.   This merry go round of correlation will persist as oil continues to be traded as as asset in its own right despite bearish oil market fundamentals.  These include poor demand as evidenced by a recent dramatic drop in the Baltic Dry Index which recently posted the biggest fall since the start of the financial crisis falling 17% during the first week of August.  This index is generally viewed as a leading indicator, in particular for commodity prices, and therefore a broad measure of global economic demand which in turn impacts on consumer prices and therefore inflation.  In addition the oil market is having to contend with an ever expanding inventory and strains on storage capacity.  However, the extent to which oil traders and investors continue to ignore these factors remains to be seen as we now wait for tomorrow’s crude oil inventory numbers and Thursday’s expiration.  Overall WTI crude ended the trading session at $66.75 per barrel having earlier touched a low of $65.23 and reached a high of $67.69 per barrel.   Interestingly the number of oil futures in WTI was significantly lower under yesterday’s candle thereby suggesting that in the medium term oil prices may well decline before making a further attempt at the $72 per barrel price point.

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Short term bullish, medium term bearish, long term bullish.

WTI

Support: 66.25    Resistance: 73.38

Support: 62.76    Resistance: 65.87

Support: 58.32    Resistance: 61.40

Brent

Support: 66.12    Resistance: 74.00

Support: 61.35    Resistance: 64.91

Support: 59.85    Resistance: 61.64