WTI Crude Finds Support on Poor US Data

by on January 11, 2014 4:34 pm BST

West Texas Intermediate (WTI) crude bounced from a new six month low as the US Labor Department said only 74K jobs were added in December, 126K less than analysts’ general consensus. This created speculation that the poor employment data would but a temporary halt to the Federal Reserve’s taper, and crude closed higher on the session for the second time in ten.

WTI crude took a $8.66 decline to end the recent rally over the last week, but crude is not out of the woods. “The China data showed that global oil demand is still strong. Crude had fallen $8 in the last few days and it’s just a little bit of a rebound,” said Kyle Cooper, director of commodities at IAF Advisers.

Nevertheless, it is likely that WTI crude will continue to decline as the US continues on its path to energy dependents as WTI crude is more North American-regional, whereas Brent crude is the international standard. $100.55 was the level to close on if crude prices had a chance to move higher, but a series of disappointing inventory data by the Energy Information Administration (EIA) and the Federal Reserve’s plan to continue tapering put a damper on upward movement.

The employment data gave crude a reprieve, but the Federal Reserve wants out of quantitative easing. Earlier this week, the FOMC minutes report indicated that officials see diminishing returns of the bond-purchasing program which feed investor appetite for risk assets until now. As the Fed tapers, it will likely take a toll on commodities, including crude. We may not see a significant move in crude until extended demand – outside a couple weeks – picks up. Many analysts point to China’s increased demand, but that should not play too much into WTI crude. Fundamentals and technicals still remain bearish.

“Our target is $88 for WTI,” said Phil Flynn, senior market analyst for Price Futures Group, stating that crude still remains bearish. The daily chart shows a minor demand zone between $91.23/53, and it supported crude’s move on Friday. It breached, but closed above, the 78.6 percent Fibonacci retracement from the yearly high-to-low.

A close below this will send crude lower to $90, which should provide some psychological support, but fundamentals could send crude lower.  Further inventory data will be watched closely. If $90 per barrel breaks, the next significant support lies around a cluster of daily candles found near the low of $85.90. The top of the cluster is the target at $89.66. However, a correction to the upside could happen where near-term resistance levels would be $93.23 and $94, while a deeper pullback to $95.96 is probable.

Crude targets highly depend of the individual’s time horizon. A pullback makes sense after an $8 decline, but the overall trend is down. Sub-$90 is likely prior to summertime.

1D Chart of QM

1D Chart of QM