Oil Futures Finding Range Ahead of Thursdays Production Reports

January 18, 2017 9:01AM CST

March WTI crude oil futures continue to find a range between 52.00 handle support and 56.00 handle December high resistance.  In what has been choppy trading into 2017, the oil market is looking primed to break it’s roughly $4.00 range as stops are inevitably building above and below these figures respectively.  Sideways trading can be expected into the 1/19/2017 EIA Petroleum Status Report, where a small rise in inventories of 0.1 M barrels is expected.  The prior 1/11/2017 EIA report sighted a 4.1 M barrel build in inventories, and surprised the market which expected a build of 0.9 M barrels at that time.  OPEC production agreements, the US presidential transition, and a strong US dollar will continue to be at the forefront of traders’ minds.

From a technical perspective, much of the same technical picture I discussed in last week’s Futures Cast remains the same, only now applied to the March contract.  March oil prices still remain above prior highs that were made on 11/22/2016 at 50.83, and formed the bottom of a supportive price band which first proved as support on 12/7/2016 at 51.80.  This price band has continued to offer support for oil futures into the New Year, continues to be tested in this week’s trading.  The 100% equal legs Fibonacci extension also has proven supportive at 52.04, a measurement that is traditionally used to find support and resistance level in a market.

In my opinion, crude oil futures are still holding key supportive price levels and have possibly begun to confirm a consolidative range in this market.  While the lack of follow through to the upside on recent rallies is concerning for the bulls, failure to break through support is equally concerning for the bears. Often times, this can be a signal of a fight over trend between the animal spirits, and lead to range bound and choppy price action before one side ultimately resolves as the winner.  With larger timeframe reversal to test towards the 60 handle still in play, I believe there is still a bias for a rally out of this range, but not before bears are exhausted.  Breaking, and closing on a daily basis, below 51.80 may signal for a larger pullback and test of the 50.00 handle.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-367-7290 or dhussey@rjofutures.com .

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