RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

In now the ninth straight week of crude inventory draws, Wednesdays EIA Petroleum status report estimated stockpiles had declined by 5.4 million barrels.  This week’s energy products (gasoline futures in particular) has been entirely driven by first the anticipation of Hurricane Harvey, and now by the anticipation of its retreat.  The fundamental play was to buy gasoline futures and sell crude oil futures (also known as the crack spread).  This dynamic is a simple lesson in basic economics, with oil refineries being shut down, it cut gasoline supplies as well as the demand for US oil.  With the storm moving on, and the clean-up beginning, it can now be expected to see a reversal in both of those plans.

The same set of technical indicators that have been driving the market price over the last few weeks, including two Fibonacci measurements, the lows from July of last year, and the channel the market has been holding the last 4 months are still very much in play.  The 44.00 support from equal legs and 50% fibs on the smaller timeframe charts, which I mentioned in last few week’s articles, is proving supportive and may be signaling the bulls are gaining back the ability to defend their ground on the larger time frame. However, now that front month crude prices have failed to break above the 50.00 handle, the bears have a line in the sand to defend, and a short term high that will keep the market suppressed.  Last week’s rejection of the 50 handle, and the subsequent decline to test the lows of August (48.37 September contract) could be the key reversal and outside day the market is looking for to confirm a short term top (as was mentioned last week).

Resistance for this week is being tested into channel and Fibonacci confluence zone into the 49.00 to 50.00 handle.  There is an equal legs measurement at 48.80 (which extends to the 123.6% line at 50.00), and this level aligns with channel trend line resistance.  Support is likely to be found into the 50% Fibonacci retracement area from the lows of July to the highs of August, measured at 46.24.  While WTI front month crude can remain solidly above 46.00 it’s likely that bulls will see this as an opportunity to defend the market from testing the summer time lows.  In the medium to long term, WTI crude futures should find a support level where there is a confluence of Fibonacci support bands (retracements and extensions) between 40.65 and 37.20 (daily continuous chart below).  Even though hurricane Harvey blasted the energy sector, the moves in energy futures were right in line with expectations.  I expect normal conditions to return, refineries getting back to FULL capacity in no time and correcting the weather trends from the last week.

Crude Light Daily Continuation Chart

Crude Light Daily Continuation Chart

Dan Hussey