Crude Oil Tumbles Through Support, Next Stop $33.54

Crude oil prices tumbled again on Monday declining to a new low for the move, a slicing through support levels near $43.57. In recent weeks, the price of West Texas Intermediate crude oil for near-term delivery declined relative to the price for longer-dated deliveries, deepening the contango in the Nymex WTI futures market.

The contango reflects the difference between spot prices and deferred prices.  As the contango growth it shows that lack of demand for crude oil near term compared with owning it down the road.  With storage for crude oil in the US becoming less available, the lack of places to put crude oil will drive the price even lower.

Inventory levels remain very high and are currently near 80-year highs.  While distillate inventories are still near the middle of their 5-year range, gasoline stocks are elevated and are above their 5-year average range.

Crude oil prices are now poised to test 2009 lows at 33.54.  There are no specific support levels between 43.57 and 333.54. Momentum on crude oil prices has turned negative again as the short term MACD (moving average convergence divergence) index generated a sell signal.  This occurs as the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread.  The index moved from positive to negative territory confirming the sell signal. 

Additionally, the relative strength index (RSI) is moving lower with price action but is not yet oversold.  The current reading of 32, is getting close to the oversold trigger level of 30 but still not there yet.  The RSI on WTI has moved as low at 20 in the last 4-months before prices bottom and reversed so oil prices can fall a lot further before traders experience a short term bounce.

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