Crude Oil Drops as Momentum Turns Negative

David Becker

Crude oil prices moved lower on Thursday, following Wednesday larger than expected build in crude oil inventories despite a relief rally in the dollar that should have helped buoy prices.  The threat of falling oil supply from both Iran and Venezuela looms large amid geopolitical tension, economic fears and sanctions. All the while, both are scrambling to maintain flows to key destinations. Crude oil in the U.S. is building up near key shale related location, pushing crude oil that is landlocked lower related to the benchmark Brent. Democrats are attempting to get Trump to stand up to OPEC as gasoline prices rise ahead of the Summer driving season.

Technicals

Crude oil prices fell through support near the 10-day moving average which is now seen as resistance near 71.42. Prices have dropped more than $2 per barrel in the last two trading session, and are testing support near an upward sloping trend line at 70.75. A break through this level would lead to a test of the recent breakout level at 69.56. Momentum on crude oil prices has turned negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. This occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the MACD line. The MACD histogram is printing in the red with a downward sloping trajectory which points to lower crude oil prices.  The fast stochastic generated a crossover sell signal in oversold territory which reflects accelerating negative momentum.

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The Dollar Ease but Failed to Buoy Crude oil

The dollar eased as U.S. Initial claims rose 11k to 234k, hence extending a 12k bounce to 223k in the BLS survey week from 211k in each of the prior two weeks and a 48-year low of 209k in the third week of April. Claims tightened sharply in late-April before a gradual rise through May to leave a sideways trend since February around a tight 224k average. Claims are averaging 224k thus far in May, versus recent averages of 221k in April, 228k in March, and the same 224k in February. The 223k May BLS survey week reading compares to recent survey week levels of 233k in April, 227k in March, and 218k in February.

This article was originally posted on FX Empire

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