Wednesday’s EIA report saw yet another build in crude oil inventories, posting a 5 million barrel increase and renewing bears interests keeping the trade lower. Without any market shaking new news out of the Middle East and OPEC nations, futures traders are left to digest what is quickly becoming an over supplied market, and renewed selling pressures are keeping the May 2017 futures solidly below the 50.00 handle. Last week, I mentioned that once the market tested below this 50.00 figure, it would likely become resistance, and front month crude futures would need to get back above this figure to begin any short covering. While below 50.00, I expect continuation to the downside, and a test of the supportive price band that should see a move to the 46.00 area.
Not much has changed on the technical picture for May crude futures. Now that the market has broken below the 50.00 handle and the supportive price band just below the market, traders should expect bears to remain in control. Watch for trend line resistance drawn against the short term highs over the last week, as well as the supportive trend line drawn against August and November lows (for May crude futures) which provided the market with an initial reaction higher off the 47.00 handle. Continuing a series of lower lows and lower highs suggests the downtrend remains intact. With the larger timeframe range between 60 and 40 – there is still room for crude bears to drive prices lower.
In my opinion, it will be incredibly important to remember the larger range the crude market has been trapped in, and that any moves inside of this range may simply be consolidation on a larger time-frame. From a geopolitical perspective, the great fight over global energy prices continues. While OPEC is trying to cut production (thereby trying to increase prices), the US is increasing its shale and rig counts (ramping up production) and offsetting the attempts by OPEC to support this market. Keep an eye on where the benchmarks are, as there may be continued opportunity in spreading Brent / WTI / Gulf prices, with each microcosm in the oil market trying for its own agenda.