This week’s EIA Petroleum Status Report confirmed a more bullish fundamental outlook (at least in the near-term), with crude oil stocks having drawdown -2.6 million barrels for the week of 3/16. The decrease in WTI inventories is likely a result of the 1.7% increase in gasoline and distillate production, with US refineries operating at 91.7% of full capacity. As I have mentioned in the past, the $60 to $65 price per barrel threshold is significant for many (both within US, and abroad) stakeholders and producers in the global crude oil complex. These two fundamental thresholds, where $66 a barrels “seems pricy” and $59 a barrel “seems cheap”, continues to be the range that has dictated price action for 2018. A move outside this range will likely see a stop-driven follow through and be the catalyst for a medium-term trend.
With an increase in oil refining, the rally which broke through trend line resistance (dotted magenta line on chart), might be due for a technical pullback to test this broken trend line (now as support). While a Fibonacci support zone has already provided a bounce from the $58.50 to $58.00 inflection zone (blue boxes on chart are Fibonacci inflection zones), WTI crude futures remain firmly below the 2018 (and 2017) contract highs. Upside technical targets from $58.00 could take the WTI crude price to the $68.00 to $70.00 objectives, and near-term support may be found at the $62.00 inflection zone. Below the $58.00 inflection zone, are the $54.50 trend line and Fibonacci 100% extension inflection zone, as well as the much larger $46.36 full 50% Fibonacci retracement inflection zone. Either of these supportive areas would be logical downside targets if the price of WTI crude breaks lower. Before this situation can even be considered, WTI crude price would need to settle below $61.00 a barrel.
In my opinion, the rally that took WTI crude prices to the $66.66 continuous contract highs (into the end of 2017 and start of 2018) has come back to life! While there are still the prior highs ($66.66) to break through, there may be an opportunity to position for the resolving push out of the current range. Although WTI crude oil prices remain in a $5.00 range, early indications (at least from a technical perspective) that the market wants to continue higher. The market will resolve itself one way or another (on a long enough timeline), and it is up to the trader to define risk and carry their trade to target after confirmation.
Crude Oil Daily Continuation Chart