Crude futures have crashed through all of our previous uptrend lines and the psychological $65/bbl level. Both of the data points we highlighted yesterday came in worse than expected, sending crude futures sharply lower. Weekly inventories not only continued their uptrend, but bolted to a surplus of 5.1 mill. vs. a shortage of -1.8 mill. last week.

Analysts were expecting a shortage of -1.1 mill. To make matters worse, the headline durable goods orders number came in below expectations while the core number beat expectations. This tells us vehicle and plane purchases are still in a poor state, reducing the present and future outlook for consumption of crude. These two negative news releases are hitting crude with a double whammy. Crude didn’t fully participate in last week’s bull-run in U. S. equities while failing to test $70/bbl, leaving crude futures in a somewhat vulnerable state as it was. Today’s news combined with yesterday’s mixed earnings and weaker than expected CB consumer confidence data was enough of a catalyst to knock crude off its horse.

In addition to today’s negative economic data, we recognize continual retracements in both gold and the EUR/USD. The downturn in these two investment vehicles is only adding downward pressure on crude futures due to their positive correlation. A weaker Euro makes dollar denominated commodities more expensive to import, reducing demand for crude and lowering price. On a positive note, the S&P futures are holding strong around 970 despite all of the market turbulence today. A comparable pullback in the S&P would only give investors more incentive to sell crude.

Despite crude’s sharp selloff today, the futures have two new uptrend lines to fall back on. Additionally, the highly psychological $60/bbl level is far away, meaning crude’s medium-term uptrend has a few strong defenses left. On the other hand, crude is only creating more barriers it will need to surpass to get back on track, beginning with July
17th highs and our 2nd tier downtrend line. Meanwhile, sell-side volume is climbing, indicating crude could have some more room to go to the downside even if there is a little consolidation from daily lows.

Present Price: $63.15/bbl

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