Three reasons why crude- oil prices are likely to slip to $55 in the near-term
WTI Crude is up about 4 percent this year after topping $66 a barrel earlier in January, the highest since December 2014. Since then, prices have been oscillating in the $58- 64 per barrel for more than a month now. Although the long-term primary uptrend remains intact, crude prices have broken out from the medium-term bullish channel and prices are likely to extend lower in the near-term.
The reasons for the expected decline are a combination of fundamental views based on the ongoing global events. In addition, prices recently broke out of the medium-term bullish channel, indicating near-term weakness in the trend.
Beginning with the ongoing conflict in Syria or the rising tensions between Iran and the other Sunni ruled countries in the Middle East, none of them are typically making front page news these days.
While in the US, the ongoing tussle on the recently implemented tariffs on steel and aluminium followed by the resignation of a top economic advisor in the US and a lawsuit by Stormy Daniels against the US President are taking precedence.
Meanwhile, in Europe and the UK, guidelines for the next round of the Brexit negotiations are in full swing with the UK calling for financial services to be included as part of the free trade agreement while the EU is pushing for a tariff-free trade in goods with restrictions on services. The election results in Italy are also adding to the woes of the EU. With none of the political parties having a clear majority, the outcome of the elections are certainly tilted towards Eurosceptic candidates.
Moving over to Asia, in a sudden turn of events, North Korea which until recently was engaged in a verbal spat with the US, conveyed it willingness to hold talks on denuclearizing the region in exchange for security guarantees from the US. The major developments which were reported by the South Korean peacekeepers after a two-day visit to the North could lead to a fresh round of negotiations amid hopes of a peaceful resolution to the Korean crisis which includes a halt to all nuclear and missile tests by the North.
Crude oil production in the US is setting new records after scaling the 10 million bpd mark this year, beating the previous record of 9.6 million barrels in 1970, according to recent data from the EIA. In addition, crude oil inventories in the US have touched 5.66 million barrels in the week ending Mach 2nd while build-up in gasoline stockpiles reached a dizzying 4.53 million barrels correspondingly.
On charts, prices of WTI settled below the medium term bullish channel last month to hit two-month’s lows of $58.07/ bbl. However, a recovery which is underway is unlikely to sustain and prices could come sliding down once again over the next few trading sessions.
Key resistances for WTI are placed at $63.00-63.25 which are unlikely to be taken out, at least in the near-term. On the downside, crude is likely to target supports at $55.50- 56.00. The long-term trend however continues to remain bullish with trendline supports coming in at around $51.00.
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