Crude passes first test of support
Crude oil flew higher yesterday, after spending the morning testing significant support. Front-month WTI dropped below $80 per barrel on Tuesday, setting the market up for a face-off between the bulls and bears. It proved to be quite a tussle, with the winner likely to set the tone and near-term direction. In the end, the bulls managed to spark a significant rally once prices broke back above $80. Upside momentum continued to build, and then news of a larger-than-expected US inventory drawdown bolstered the push higher. Prices pulled back a touch this morning, but overall the move looks constructive. This positive reaction to a serious test of support has increased the probability of more gains to come. But traders should be on their toes should prices turn down again, as there’s no guarantee that there won’t be another retest of $80. While the economic outlook for China remains uncertain, the US economy continues to motor along, even if in a lower gear from earlier in the year. But the prospect of three 25 basis point rate cuts from the Federal Reserve before year-end is also helping to boost positive sentiment.
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