RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

WTI crude oil inventories fell by 1 million barrels in the most recent EIA Petroleum Status Report released on 4/19/2017.  Contrary to the fundamentally bullish news (a drop in inventories), crude futures have quickly become a technically driven trade, and have fallen just over $2.00 to the June ‘17 contract lows of 50.51 yesterday.  While today’s price action has not taken out those 50.51 lows, the muted rally into the 51.40 area could be considered a textbook “dead cat bounce”.  With global oil markets anticipating an extension in OPEC production cuts, it will be important for traders to keep eyes on the news wires for continued consensus from OPEC nations in renewing their supportive measures.  Continued tensions in both the Korean peninsula and the Middle East should also be monitored, as “hot conflicts” are often followed by a rise in oil prices and considered a strong geopolitical event risk.

From a technical perspective, June ’17 crude oil futures have traded lower into a 50% Fibonacci support zone, measured from the March 47.01 lows to April 53.76 highs on the continuous contract.  This inflection zone may find buyers at the 50.39 to 49.59 price band, and while above could signal for a retest of the trend line resistance drawn against the series of 2017 highs since January (see chart below for the trend line in question).  As I mentioned in a previous article, crude futures also previously found support from a similar trend line drawn against lows.  This supportive trend line also aligned with the 47.00 handle and a 50% Fibonacci inflection zone, which provided a bounce higher and March lows.  The combination of both these trend lines puts crude futures inside a compressing range, and suggests there may be an extended fight over the medium to long term trend still under way.

In my opinion, there is a clear cut opportunity for bulls to defend a key technical area here above the 49.00 handle.  As long as June ’17 crude futures can remain above this area, and the trade can find its way higher, and eventually above the current April 53.76 highs, there is a chance for a more sustained and substantial outlook higher.  While inside the current range, and with a failure below 49.00, a subsequent drop to test the 47.00 trend line / 50% fib / prior lows will ultimately keep this market sideways and choppy.  There are few markets right now that are taking current geopolitics to such a literal head spin, and the trade in crude is printing it on the chart.  Technicians are at work, and there are key levels that will be respected or not…pick a side, reduce risk, and may the trade be with you.


Jun ’17 Crude Light Daily Chart

Jun '17 Crude Light Daily Chart

Dan Hussey