RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

This week the EIA Petroleum Status Report showed a draw on Crude Oil Inventories by a decent -2.1-million-barrel drawdown, settling inventories for WTI crude to 394.1 million barrels (2.3% below their levels one year ago).  Crude Prices have responded by stabilizing above $65 a barrel, and continue to try to hold onto the psychological $70 threshold.  The path of least resistance still seems to be higher, and fundamentally driven price rallies can be expected.  While the market has struggled since August to break and hold above $70 a barrel, it can be expected that a large number of stops may be looming above the $71.50 price highs.  Those stops may very well become the fuel for a short covering rally, on a break above.

From a technical perspective, WTI crude futures continue a period of price discovery within a range, which is being sustained from the supportive $65.25 area inflection zone and the $71.50 price area as resistance.  Support has been “bottling up” the lows against the $71.50, creating subsequently higher lows over the last several weeks.  Upside Fibonacci price projections suggest the market could target the $80.00 price area, and technically remains bullish above the $62.89 “line in the sand” from the $65.26 inflection zone.  This scenario seems to be the path of least resistance, and the next logical progression would be to for a market to trade to its technical projected targets, since it seems to now have found (tested) proven support.  While the market remains above $62.89 (61.8% Fibonacci technical ‘line in the sand’), this price level projects upside technical targets of $80.00 in the medium term.  In the near term, look for prices to hold above $68.00 a barrel and for a break out above $71.50 to follow the $68.00 level holding.  Below $62.89 at this time, would suggest a retest of last support at $55.00-50.00 inflection zones, and below those levels the continuation of the current multi-week and multi-month uptrend may come into questions.  In the near term, WTI crude futures have seen a multi-day price decline, right into the 61.8% Fibonacci inflection zone at $67.14.  Upside from that area suggest a near term price target at the -23.6% Fibonacci price level of $73.03.

                In my opinion, the rally that has taken WTI crude prices above the $66.66 continuous contract highs (into the end of 2017 and start of 2018) is still a very important “break out higher” indicator for the market’s longer term cycle.  Price action over the last several months has continued to hold the market above this key line in the sand (as well as other shorter term bullish confirmation lines), and justifies keeping sights on higher prices in the near term.  The fight over trend seems to be all but won by the bulls, which has continued to take the market price higher since June of 2017.

Crude Oil Daily Chart

Crude Oil Daily Chart

Dan Hussey