Oil prices fell sharply yesterday and the selling continues this morning as official data shows that U.S. stockpiles of products like gasoline rose sharply last week, suggesting weak demand during a period of a traditionally peak season. Oil prices have been falling this week as worries over a Middle East conflict have eased, oil production in the Gulf of Mexico has resumed after a tropical storm, and worries have emerged over Chinese economic growth. In addition, on the oil supply front, traders are focusing on large builds in refined product inventories dragging prices down. Moreover, the EIA report yesterday showed a larger-than-expected drawdown in crude stockpiles.
After a slight pullback to the 20-period moving average yesterday, WTI plunged again almost $2 to settle at the $56.30 to $56.50 support area (S1). Prices are trading close to July's lows at 56.04 and selling might accelerate should crude mark new lows for the month. Although if we look at the 4-hour chart, we notice an important support level at the 200-period moving average in addition to extreme oversold conditions as shown by the RSI. We therefore expect a slight pullback from here for the very short-term. On the medium to long-term, however, the trend is clearly bearish.
Support: 56.30 / 56.04
Resistance: 58.22/ 59.98