For the second week in a row, the EIA Petroleum status report estimated record drawdowns for crude inventories, shattering recent year’s seasonal comparisons.  Last week the report estimated a draw of 6.3 million barrels, which was compounded this week with another draw of 7.6million barrels, means that nearly 14 million barrels of inventories will need replenishing in just these last two weeks of trade.  It’s a bit shocking there hasn’t been more vocalization form OPEC and oil producing nations, in an attempt to accelerate the near term demand with continued supply cut rhetoric.  As I have said before, talk is cheap, and while OPEC cuts have been made a reality, it’s clearly not enough of a consensus to empower the bulls.  The continued production of US shale has been out pacing the OPEC efforts to cut production, at least in the minds of traders and the market.  The drawdowns in reserves form the last two weeks however may be what the bulls need to take back control, however the sideways price action since June in the WTI continuous contract suggests the wrestling match is still underway.

I discussed last week how breaking below the May 43.76 lows from the continuous contract was a very important level test.  The same set of technical indicators that were diving the market price action since last week, including two Fibonacci measurements, the lows from July of last year, and the channel the market has been holding the last 4 months.  The 44.00 support from equal legs and 50% fibs on the smaller timeframe charts, which I mentioned in last week’s article, is proving supportive and may be signaling the bulls are gaining back the ability to defend their ground.

 Resistance for this week is expected into channel and Fibonacci confluence zone from 47.00 to 48.20.  If the market continues to break down below 45.00 then below the lows of July at 41.05 for the August contract, 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).  I expect the extension of this trend line support, which crosses the 50% Fibonacci retracement and 100% Fibonacci extension at the 40.65 area, to be tested and support the market in the near to medium term.  Now that the market is above the 45.00 area, this opens the door for a test to channel resistance into the 47.20’s to 48.20’s.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-367-7290 or dhussey@rjofutures.com.