Crude Oil prices
One of the biggest drivers for crude oil price is the hurricane season. Every time a hurricane or more threatens to reach the Gulf of Mexico, the price of oil jumps on supply disruptions. Only this time there are a few other things to consider besides the logical bullish hurricane season – COVID-19, for instance, and what it means for the global economic recovery.
The cured oil price moved in a very tight range all summer. It hovers above the $40 mark, looking for direction, despite OPEC meeting in the meantime. Nothing seems to break the tight ranges, but some dark clouds appear on the horizon.
European diesel demand declined during summer. In a way, it is normal for the summer months, but the decline. Recent data out of Germany shows the German diesel traders cannot find tank space anymore, and therefore there is no demand increase expected in the near future.
On the other hand, crude oil inventory dropped -4.524 million barrels, according to API. That is much more than expected, shrinking for the fifth consecutive week.
On the hurricane front, hurricane Laura is expected to strengthen to category 4. More than 13% of U.S. capacity has shut as Laura prepares to landfall in Texas.
Yet, there is little or no impact on the crude oil price. Yes, it jumped a dollar or two, but that is not the price action you want to see before a major advance.
The tight range during the summer months formed against horizontal resistance. On top of that, the market forms a rising wedge, pointing to a reversal. Moreover, the wedge diverges from the RSI, another bearish setup.
However, before jumping on the short side, keep something in mind. This is a long-term consolidation. If anything, it shows market’s strength, its ability to hold levels despite so many bearish signs. Hence, to trade it, consider placing a pending sell-stop order to $40 and a stop-loss to $43 while targeting $34 for a nice 1:2 risk-reward ratio.
