Oil Is Down

Earnings season quickly sapped the life out of the equity and commodity markets, showing that the US economy has a long way to go to fully recover. In addition to slower economic growth, inventory levels could be on the rise. Traders may wish to monitor developments relating to Tropical Storm Sandy, as its progression to a hurricane could cause supply disruptions in the Gulf States.

Fundamentals

Crude Oil is down for the fourth consecutive session under the weight of earnings season. We have seen companies missing targets, suggesting the economy may be worse than Oil traders had previously priced-in. Some traders are pricing in another inventory build in tomorrow's EIA petroleum report on higher production. The analyst estimate of a 1.8 million barrel build in Crude Oil was calculated factoring in the highest works production in 17 years. If the economy is really as soft as earnings season is projecting, tomorrow's EIA number easily could be much larger than the 1.8 million barrel build currently being projected. The news that the Keystone pipeline is now back online adds a bit of bearish pressure on the Oil market. Many traders are closely watching Tropical Storm Sandy, which threatens to become a hurricane. If Sandy does, indeed, tick-up to hurricane speeds, it may be seen as a bullish force for the Oil market, depending on its trajectory.

Technical Notes

Turning to the chart, we see the December Crude Oil contract closing just above support at 88.50 yesterday. Prices have already moved down through this support level in overnight trading. If prices do indeed close below 88.50, prices could attack support at the 80.00 mark, which could be seen as major support. The RSI is already near oversold levels, so it will be interesting to see if the bears have enough momentum to keep seeking pressure on Oil prices.