Crude has taken it on the nose with the recent spike in the U.S. dollar, but other factors may have contributed to crude’s decline. Worries about the economy (now that the Fed may pull out sooner than later) and China has halted momentum. Crude posted the largest two-day decline in over a year. Even with geopolitical turmoil in the Middle East, the outlook for crude has changed.
Phil Flynn, Price Futures Group energy analyst, said “without quantitative easing and strong china demand, the oil bull story evaporates.” He continues, “the only thing you have left is potential geopolitical risk or weather risk, which at this point seems to be coming down a bit.”
Traders are looking to exit long-dated contracts with the assumption that there will be less inflation given recent comments from Fed Chair Ben Bernanke. It is not in the best interest to be long crude with economic conditions constrict with the dollar possibly going higher.
On the daily /QM (crude mini futures), crude was unable to trade much above the long standing range shown by the top of the channel at 98.13.
There is support on the 200 EMA at 93.667, but with the negative sentiment there is more downside potential. The bottom of the range will be tested at 91.41, and a break will signal more weakness down to 90.08.
Two additional targets are 88.07 and potentially 84 by mid-2014. There are a lot of variables that can come into the equation, though. We have to see what the rest of 2013 has to show us in the economy both in the U.S. and abroad, more importantly China. If the dollar can meet this years highs of 84.54, crude can pay the price.