RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

This week’s reading of the EIA Petroleum Status Report, crude oil inventories rose in the US by 1.9 million barrels. Compared to last week’s inventory gain of 2.2 million barrels, trade has responded more in kind with the bulls, as crude demand remains consistent since US refineries have been brought back online (after hurricane Harvey). This week’s EIA report was dwarfed by the API report earlier this week which saw a rise of 6.5 million barrels, so now the only question is which is correct? Gasoline inventories were also reported to have seen a 0.9 million barrel gain and this might be the result of refineries over estimating short term demand for gasoline. A backup in the production chain is usually seen as bearish for trade, and likely a strong proponent for the decline in crude oil futures from last week’s 57.92 highs.

From a technical perspective, WTI crude oil futures have continued to trend higher from the mid-summer lows in the continuous contract. Below I have included a daily bar chart, outlining some of the important price levels that could produce a reaction in the crude market. The most important of which, is the 55.24 high from December of 2016, which the market his currently finding as support now that it has closed securely above. Below those prior highs, the 54.18 and 49.99 50% Fibonacci inflection zones are the next key downside support levels bulls should pay attention to.  To the upside, resistance will likely be found into the 60.00 handle, as the fundamental trade suggest a significant price barrier there (as this is where US shale becomes profitable). Technical upside projections come in around 62.50, as a target zone from the previous Fibonacci support levels.

In my opinion, crude oil futures are now above a short term line in the sand, where a breakout higher could be imminent. I am cautiously optimistic that the 55.00 area will now hold as support and give way to a rally higher, however, the closer to 60.00 a barrel the market gets the higher probability more oil wells and rigs will be brought online (if they aren’t already) to meet demand. With global production nowhere near its full capacity, the price of WTI oil likely remains capped in the near term (where that level is however, remains the battle), but the trend is up until it fails.


Crude Light Daily Continuation Chart

Crude Light Daily Continuation Chart

Dan Hussey