Fundamental and Technical Analysis
Despite increases in oil prices, we still see technicals for crude oil to be in bearish territory: Taking a step back, we largely still see oil prices moving in this huge range bound movements. This is reflective of the weak fundamentals which have more or less been priced in but have yet to be improved. Technically, we are still seeing prices remaining in bearish territory, which suggest that it could take awhile before we see prices move upwards again. Essentially, prices have failed to move above the daily SMA200 since Aug’14 which is a perfect representation of the bearish prices. Even as the daily SMA200 flattens out, prices are nowhere near that level.
This also suggests that moving forward; a very strong resistance will be seen at the daily SMA200. At the moment, daily SMA200 is slightly above $50 and $56 for WTI and Brent which would likely need to be broken before we could see prices moving higher. Using other technical indicators like the Ichimoku Kinko Hyo, we are also seeing similar bearish signs. Although the bearish momentum could lead prices to test current supports, we would believe in the current supports of $41.32 and $43.64 for both WTI and Brent Jan’16. Breaking of this support could mean that prices could be breaking to newer lows.
Prices increased yesterday as the market starts to price in the increased geopolitical tensions after the Paris attacks. It would seem that the sentiments over this terrorist attack were mixed, which led to a delayed increase in oil prices. The market seems to be worried that the attacks would lead to weak oil demand from Europe which explained the increase in WTI compared to Brent. Nonetheless, we are seeing prices finding a support at levels we have identified yesterday and continue to believe that they would hold. This would be contingent on whether the US Dollar Index could break 100 which would likely cause the supports for WTI and Brent Jan’16 to be at $41.32 and $43.64 to be broken. On top of this, we would also have to see the progress on Iranian sanctions and when it would be lifted. We reiterate the possibilities of newer lows if this were to happen, especially when prices are this low.
The bearish momentum coming from a warmer than expected winter seems to have past with Natural Gas Jan’16 finding a low at $2.357. With the winter in the US about to start, prices are shrugging off the bearish momentum and bracing for how the strong El Nino would be affecting the winter. We would think that inventories smashing the previous historical high and warmer than expected winter have already been priced in. This means that prices should be moving higher when winter starts. We would think that Natural Gas Jan’16 should be testing resistance of $2.602 and even if prices do happen to fall this week, supports at $2.479 or $2.45 for Natural gas Jan’16 should hold. (Read Report)