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Daily Oil Price Analysis 4 Feb 2010

Crude Oil Chart 4 Feb 2010

Whilst yesterday’s small shooting star candle certainly suggested a degree of bearish sentiment in the crude oil market, today’s sell off has been nothing short of spectacular with daily oil prices crashing back to their level at the start of the week and breaking below all three moving averages once again.  The extent of today’s sell off has, in my view, been an over reaction and largely driven by dollar weakness & fears that the recovery in the global economy is faltering once again.  The problem from a technical perspective is that we have a number of issues to consider:  firstly today’s wide spread down candle has broken back below the strong potential support in the $75 per barrel region propelling daily oil prices to re-test the secondary level at $72 per barrel.  Secondly we are now approaching the 200 day moving average which sits just below in the $71 per barrel area which is currently presenting us with the last line of defence.  Should we see a breach of the $71 per barrel level which would then be coupled with a break of the 200 day moving average then this would further reinforce the short term bearish view for crude oil price and if so then we could see a re-test of support once again in the $65 per barrel region in due course.

Furthermore, yesterday’s DOE oil stats have done nothing to support oil prices with the crude oil stockpile increasing by 2.3m barrels against a forecast of 400k barrels even though both gasoline and distillate stocks fell by 1.3m and 1m barrels respectively.   Tomorrow, of course, sees the release of the non farm payroll figures which will be testing time for all the markets but could just provide daily oil prices with a degree of support should the data come in better than expected.   Overall the WTI contact closed today’s oil trading session at $73.08 per barrel and Brent at $71.94 per barrel.

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