RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

This week the EIA Petroleum Status Report showed a slowdown in US oil production, with US stockpiles losing -4.1 million barrels.  The EIA number has been all over the map in the last few weeks, with a notable build of 2.1 million barrels last week, which continues to fortify my belief that the $60 to $70 range in crude prices is being arbitraged against the cash trade.  US refineries were operating at an incredible 95.7% of their capacity, a .3% rise compared to last weekend nearing the historical highs in capacity.  Refineries operating at near maximum capacity means the demand for WTI crude may be nearing its highs.  This will likely translate to a slow down in crude consumption, as a result of maximum capacity being reached, and subsequently a bearish price scenario for WTI crude futures in the near-term

From a technical perspective, momentum indicators have started to react from oversold conditions, with stochastics now bouncing off their low (from a daily chart perspective), with WTI crude prices stabilizing over this las week.  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 still has inflection zone targets clustered between $70 and $76 a barrel.  The short-term target from $58.00 (which is at $71) has been hit, and a pullback is often times the result of profit taking rather than the start of a reversal in trend.  From the $65.50 inflection zone, the market has bounced from this 50% line, back towards the $67.23 price area, which is the 38.2% Fibonacci level of the same retracement.  If WTI crude prices break back into the multiyear range (below $64.22 recent lows), traders can expect support into the $63.80 and $58.00 inflection zones.  Before this situation can even be considered, WTI crude price would need to break below its recent $64.22 lows.  The current supportive inflection zone (Fibonacci 50% pullback from $58.07 low to $72.90 high) comes in at $65.49, which also aligns with trend line support drawn against lows (magenta lines).

In my opinion, the rally that has taken WTI crude prices above the $66.66 continuous contract highs (into the end of 2017 and start of 2018) is still at the forefront of traders’ minds.  The fight over trend seems to be all but won by the bulls, which had been ruminating for most of the month of April.  The recent pullback is currently testing the $66 prior highs (broken resistance) now being tested as support.  The trend is still up until it’s not, and I believe a break below the $64.22 price level would constitute a reversal at this time.  Technical upside targets were hit, which has resulted in profit taking from the $70 to $73 inflection zone, and the market has simply pulled back into its next supportive price level.  With WTI crude prices above prior multiyear highs, the trend is up until it’s not (and I like to think, trend is my friend).  When a market speaks, you must listen, and WTI crude may be telling us this is the beginning of a much larger trend being born.

Crude Oil Daily Continuation Chart

Crude Oil Daily Chart

Dan Hussey