WTI crude oil prices finely balanced

Oil prices managed to recover from sharp losses yesterday, but still remain in the red on the week.

Oil prices managed to recover from sharp losses yesterday, but still remain in the red on the week. At the start of today’s session, prices were a little weaker as speculators made a more sober assessment of yesterday’s oil report. At first sight, the EIA’s weekly crude stocks data appeared bullish. After all, the headline drawdown in US oil inventories of 4.6 million barrels was much better than 1.4 million expected. What’s more, stocks of gasoline also fell while crude oil processing rose more robustly than expected. However, stocks of crude oil at Cushing rose by a sharp 3.7 million barrels. On top of this, distillate stocks rose, as too did US oil production. However, the market chose to focus on the good aspects of the oil report and price responded positively as a result. Market participants probably chose to ignore the latest rise in US oil production because of the fact that OPEC’s own production appears to be falling at the same time. According to a Reuters survey, OPEC’s production fell by 90,000 barrels per day in March compared to the previous month. This is unlikely to last – we expect the OPEC to ramp up its output back towards its agreed production levels. Overall, the oil market remains amply supplied and we don’t expect prices to move up in a meaningful way over the course of the year. We think that the upside is limited and that the risks are skewed to the downside.

However, for the time being, the technical outlook remains modestly bullish and prices may continue pushing higher a little further before we potentially see the top. In fact, WTI formed a long-legged doji candle on its daily chart yesterday. This pattern is typically bullish when it occurs after a pullback. This particular one has actually happened at support between $62.20 and $62.55, and above the 50-day moving average at $62.78. So far however there hasn’t been any follow-through on the upside as resistance between $63.75 and $64.20 has held firm. If and when this resistance range breaks only then may we see some follow-up technical buying pressure. If this bullish scenario plays out, then we wouldn’t be surprised if WTI were to climb back towards the top of its range and this year’s earlier high at $66.60/5 area over the coming days.

However, if the abovementioned doji candle turns out to be a false signal and price breaks below it in the coming days then this would be a bearish development. In this potential scenario, WTI will most likely head below the recent range low at $60. And if there is acceptance below $60 then who knows how much further it may drop.

But that is the alternative scenario; our base case is that it will push higher given the formation of the bullish-looking candle yesterday. In any case, conservative traders may wish to wait for price to make up its mind before deciding on the direction. And given the recent choppy price action, traders may wish to remain nimble and trade from one level to the next, rather than looking for swing/position setups.

Source: eSignal and FOREX.com. Please note, this product is not available to US clients

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.

Open an Account