NYMEX crude oil prices fall on Spain downgrade after hitting $75.72 intra-day

NYMEX crude oil futures ended lower on Fri 27 May 2010, posting the worst monthly decline since Dec 2008 at the height of the financial crisis, as a downgrade of Spain's credit rating sparked further euro zone worries and prompted oil traders to seek less risky assets. The day's retreat from a heady rally the day before accelerated past midday as Wall Street dropped sharply following news of the Fitch ratings agency's downgrade, stoking more worries that the euro-zone debt crisis would stifle global economic growth. NYMEX crude oil prices slid from $75.72 on disappointing consumer spending data and a report that business activity in the Midwest fell this month, overshadowing other reports that incomes rose and consumer confidence edged up.

- The sharp rise in crude oil prices in the past few sessions has been breathtakingly steep, but I'm not really buying it. Figuratively and literally. I've got about a couple of reasons for that, one fundamental and one technical. Fundamentally, while the US economy appears to be in the process of recovery, there are a couple of leading economic indicators that appear to have been rolling over in the past few weeks. Consumer spending had been flat in Apr 2010, while business activity has been growing less than expected.

On the technical front, you will see two opposing forces at work in the chart above. If we are looking at short-term trending (if you could call it that), then yes it appears that there has been a sharp upside reversal in the last few trading sessions, with oil prices hitting a local minimum in the $67 region, and they even seem to be on track to break above the 200-dma level. Which ought to be bullish. However, on a longer-term basis, there is a looming Death Cross in the process of formation, which is a 50/200-dma downside crossover. Now, as they all say, a technical formation isn't a technical formation until it is actually completed, but I wouldn't really want to bet against 50/200-dma crossovers if I could help it. Which is bearish, and further, that's on a longer-term basis.

Meanwhile, Business Week reports that : crude oil futures are "very weak" and are poised for a drop to $58, according to a technical analysis by Newedge Group. "The picture remains very heavy" for oil, and the trend is still down, said Veronique Lashinski, a senior research analyst for Newedge USA LLC in Chicago. After settling below $70, the next support level on a weekly basis is at $65.05 a barrel, and below that $58.32, according to Lashinski. - those support levels are roughly near what I've mentioned earlier. But of course, if it breaks the local high above $87, then the picture changes somewhat and we're back on track to $100 oil. Well, you never know.

(2010-05-31 12:39:55 SGT) [Energy] Permalink

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