WTI crude oil is down, but not out

Crude oil inventories surged at its fastest pace in a year of 8.7 million barrels last week, according to the Energy Information Administration (EIA). Soft demand on ongoing maintenance was to blame according to the EIA, who noted gasoline stockpiles were also higher. This sent WTI crude oil prices down -2.3% on Wednesday to mark its lowest daily close this year.

Yet with WTI crude oil having already fallen over 11% from its January high, and with little in the way of a meaningful pullback, perhaps a bounce is due. I noted in this week’s COT report that my bias was to seek evidence of oil holding support for a move higher, and we could be at or near that point, looking at the key levels of support nearby.

WTI crude oil technical analysis

On Tuesday a bullish hammer formed, with the low of the daily wick respecting the 200 and 50-day SMA. It also saw a marginal, false break of the November high and $71 handle before its rebound into the close. And while we clearly saw lower prices on Wednesday, a bullish inside day suggest demand just above $71 and a hesitancy for crude oil to break immediately lower. Furthermore, the bearish inside day was on lower trading volumes to show a slight lack of conviction from bulls.

Also note that prices are yet to test the 200-day EMA and 50% retracement of the January high to 2024 low at 70.50, and we also have the big round number of 70 in the area for psychological support.

Oil prices may struggle to provide a solid rebound without a fundamental catalyst, whether that be positive headlines from China’s economy or developments with tariffs. But given the plethora of decent support levels nearby, a minor rebound to $73 or even $74 seems feasible.

Ideally prices will hold above Tuesday’s low and bulls can seek evidence of a swing low on intraday timeframes. Otherwise, the bias remains bullish above $70, and bulls could seek evidence of false break of the 200-day EMA and 50% level ~$70.50.

A break below $70 brings the high-volume node (HVN) at $68.34 into focus for bears.

WTI crude oil futures (CL) positioning – COT report

To recap my observations from the weekly COT report for those who may have missed it, large speculators and managed funds reduced their net-long exposure for a second week. And we could see a further reduction of their bullish exposure in the coming weeks without a fresh catalyst. But the fact that ‘speculative volumes’ (LS and MF combined) are also falling underscores that this is longs covering and not bears taking a particularly gloomy view on oil. Besides, we saw a strong rally into the January high, and corrections are part of every trend.

While the medium-term outlook could be lower, I am still seeking a technically-driven bounce while prices hold above $70.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge