Following an increase in Chinese interest rates the price of crude oil quickly fell. But as fast as the price dropped, spot crude oil prices quickly regained traction as traders shrugged off Chinese monetary policy tightening and bid prices higher. This may show there is technical support for spot crude oil prices as well as other fundamental forces at work.
Yesterday the price of spot crude oil fell as low as $85.70 before recovering to close at its opening day price of $87.35.
The cause of the early selling was due to an interest rate increase from China as the PBOC raised the base lending rate by 25 bps to 6.0%.
One explanation for the fast recovery in the price of spot crude oil may be the market has already priced in a tightening of monetary policy in China. This is the third interest rate increase since October and it is not expected to be the final rate hike. The Chinese authorities have made it very clear their intention to fight inflationary forces. It is possible these interest rate prices have been largely priced into assets by traders.
Today will bring the release of US weekly crude oil inventories. Expectations are for an increase of 2.2M barrels.
Technical support also appears on the daily chart following yesterday’s price decline. The low of yesterday’s candlestick coincides nicely with the rising trend line from the August lows. The slow stochastic oscillator looks to be moving higher, indicating a potential rise in the price of spot crude oil.
As such, resistance is found at Monday’s high of 89.50, followed by this year’s high of $93.00. Support comes in at $85.00, with further support at the 200-day moving average at $82.00.
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Russell Glaser is a Currency Analyst with ForexYard. Russell provides analysis in the FX spot market by employing fundamental research methodologies. In addition to currencies, Russell closely follows the correlation between the Commodities market and the movement of equities. His writings have been published on the ForexYard Trading Blog and associated partner sites. Prior to joining Forexyard, Russell Glaser served as a management consultant in the financial services industry, advising Fortune 100 companies. Russell holds a degree in finance from the Fisher College of Business at The Ohio State University.
