Buyer Beware in Crude Oil

January 6, 2017 2:18AM CST

Crude oil inventories dropped by 7.1 M barrels in this week’s EIA Petroleum Status Report, while February WTI Crude oil futures trade up 45 cents on the day (as of 3 pm CST on 1/5/2017).  The recent draw on crude stockpiles confirms supplies have tightened in the US, and is likely the catalyst for the rise in the price of crude oil since mid-November.  As price continues to rise, we can expect to see a correlated trend in the number of active rigs online.  Both the price of oil, and the most recent draw to inventories, could be a catalyst for previously off lined rigs to come back into production over the coming weeks.  Continued instability in the Middle East is adding to the uncertainty of global supplies, and a catalyst for the continued rally in global crude prices.

While the fundamental picture is firming for oil prices, the technical picture and chart of WTI crude oil futures is calling for some caution.  The uptrend that began with November 14 th lows is still intact, however the daily candlestick chart for February WTI crude futures is showing signs of topping and warrants caution for the bulls.  Price has been locked in a range between the 52 and 55 handles since the start of December, and has lost a significant amount of momentum into its recent highs.  The 53.82 is the February contract highs from mid-summer, and is currently offering resistance on the daily chart, that has caused a pause in the uptrend and consolidation in the near term.

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