RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

The bears continue to find their fuel from Wednesdays EIA Petroleum Status Report which saw an additional 1.6 million barrel build in inventories.  This last week’s price action for May ‘17 crude oil futures continued to respect the lows from March at 47.01, and have rallied to highs of April into 51.88.  This short covering rally, against the prevailing growth in crude oil inventories (fundamentally bearish), may be nothing more than a corrective bounce for oil futures in the near term.  It will be important for traders to utilize key trend following techniques, as well as prior technical level, which together can help to identify the next opportunity to hop in on crude’s resulting move.

On the technical side, May ’17 crude oil futures have traded higher and right into some key levels of potential resistance.  These inflection zones might produce an opportunity for bears to defend some key levels which the bulls failed to hold earlier this year.  This type of “broken support now resistance” is one of my personal favorite means to produce trade setups, because they intrinsically rely on prior market participation to prove their value.  For the first 3 months of 2017, crude futures consolidated in a much respected 52.00 (approx.) lows to 57.00 highs.  While this range compressed, the 52.00 lows of that range held against every inventory build, for months on end.  The market couldn’t support the fundamental weight of all the crude sitting in tankers and silos across the world, and eventually price collapsed below those lows through March and into April.  The market has now chosen to test that broken 52.00 support, coupled with the 50% Fibonacci inflection zone at 52.13, may offer formidable resistance while below 53.33 61.8% line.

In my opinion, the supportive trend line drawn from August lows to November lows (in the continuous contract), comes in at 47.00, and while above that trend line May ’17 crude futures do have the chance to rally.  The fundamental picture has shown a slowdown in the rising crude inventories, which is likely a reason for the short covering in the near term.  It will also be important to remember the larger weekly range of 40-60 in crude, which has been respected for some time now.  This puts crude likely heading lower in this larger timeframe range, which gives room for move to fresh lows through the March lows of the current front month futures.  The market will know if this resistance from 52.00 to 52.20 gets respected, the path of least resistance is down, but failure of bears and a push back to 53.00 could change that dynamic entirely.


Crude Light 240 Chart


Dan Hussey