Top Story

WTI: Crude in technical bounce ahead of US oil stocks

Although higher at the time of this writing, oil prices have been generally falling ever since that OPEC meeting on May 25. Disappointed that the oil cartel and Russia could not come up with a bolder plan to reduce the global crude surplus, market participants have been selling into every bounce since. Yet at the same time, oil prices haven’t exactly collapsed, at least not in nominal terms anyway. After all, Saudi and co are at least trying to put a floor under prices by reluctantly limiting their oil production. This is likely to keep oil prices supported in the long-term, assuming that the Qatar situation does not scupper the OPEC’s efforts.

In the short-term, the focus of the oil market participants will turn to the US. Here, oil production and exports have been rising as OPEC countries lost market share. According to the EIA, US crude production averaged 9 million barrels per day in the first quarter, up nearly 200,000 b/d compared to the fourth quarter. About 900,000 b/d of US oil was exported to 24 different countries, compared to exports of 510,000 b/d in the previous three months. However, despite the increase in oil production, Q1 output was still down year-over-year and nearly 500,000 b/d less than levels hit in the first quarter of 2015.

So, the OPEC’s strategy to limit its oil production along with Russia and a few others hasn’t been a total failure. Indeed, US oil stocks have actually fallen for several weeks now, suggesting the glut may be falling after all. Any further sharp reductions in US stocks could put a floor under oil prices in the short-term. The API will be releasing its latest oil stocks data this evening, ahead of the official figures from the EIA tomorrow.

WTI has actually reached a key support area, which may help explain why it has bounced back today. As can be seen from the chart, the area between $46.75 and $46.95 was the last resistance zone prior to the rally that ultimately failed. Once resistance, it is now offering some support. Traders have respected this zone for three consecutive days now. In addition to resistance turning into support, this area represents the 61.8% Fibonacci retracement against the last rally. Thus, it is clearly a key area of support, which therefore means that in the event of a break down oil prices could sharply extend their losses. If this area were to break down in the next few days then this would end any bullish hopes in the short-term. As a result, WTI could then drop to test the next support at $46.05 and potentially drop all the way to its prior lows around the $43.80-$44.00 area next. Conversely, if support around the $46.75-$46.95 area holds and WTI manages to break a few short-term resistance levels, including $48.20, then we may see a sizeable bounce soon. For now, though, the structure of short-term lower lows and lower highs continue to hold. So, the path of short-term least resistance is still to the downside and will remain that way until the chart creates a decisive bullish pattern (for example, a clean break of $78.20 resistance level). 

Source: eSignal and FOREX.com.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

The markets are moving. Stop missing out.

Open an Account