Oil, Natural Gas Could Extend Losses

NEW YORK (TheStreet) - Crude oil and natural gas could tumble this week on bearish technical indicators and escalating inventories.

In addition, the dollar is expected to strengthen this week following economic data releases. However, the improving demand outlook for oil and gas could limit the price drop.

Technical indicators suggest a bearish trend in crude oil prices. Last week, September futures reached lower of $75.01 per barrel and closed the week at $75.39, down 6.84%.

Crude witnessed new lows in comparison with the penultimate week and the downtrend is expected to continue this week. Weekly RSI (14) is treading at 0.44, portending further declines. As per the Fibonacci principle, crude prices are tested at the $75 levels, which is close to 76.4% levels. If prices breach and sustain below 76.4% this week, prices could decline further.

Last week, natural gas for September delivery closed in the red conceding 3.11% from the penultimate week's closure. Gas attained a high of $4.584 and dropped to $4.257, to settle at $4.328. Gas prices have been consolidating over the past twelve weeks and major trend line support is seen at $ 4.260 levels.

If natural gas prices breach and sustain this level during the week, further downside can be expected. Additionally, gas is trading below the long-term and short-term EMA (9, 18, and 45 days) prices, signaling a bearish trend during the week.

The raft of economic data releases expected this week will likely be positive for the U.S., the largest oil consumer of the world, thereby lifting oil prices. Jobless claims data, a major mover of oil prices, is likely to drop. Philadelphia manufacturing activities could rise, which may appreciate the dollar by the end of the week.

The U.S. Energy Information Administration (EIA) crude inventory report showed a draw down of nearly 3,000 million barrels last week. However, gasoline and distillates stocks have been inflating due to slumping demand. Baker Hughes(BHI) rig count stands at 992, indicating higher production activities. Refinery utilization rates decreased the most past week, which could reduce oil storage in the upcoming week and, in turn, have a positive impact on prices.

Crude will likely trade steady early this week, buoyed by the impact of economic data releases last week. The negative dollar-oil correlation may lower crude prices marginally on the expected recovery in the economy.