RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

With WTI Crude futures trading over $6 from their May lows (in the June contract), this rally has most traders wondering if this is the start of the next rally back to highs or is the market coming in on a short term top. There is good backing for either scenario to play out, there is a clear line in the sand at the 50.85 price level, which in my opinion, and June crude should remain below to keep the market from testing its 55 handle highs. 50.85 is where there is both the 61.8% Fibonacci line as well as channel resistance come into play, and if the trade can push front month crude above that area, it could entice the market to run back to 55.

OPEC continues to make headlines, reiterating their rhetoric for continued production cuts which seem to be falling on deaf ears for the market. It’s been months of the same headlines, and while the decreased supply from OPEC certainly helps support crude prices worldwide, one has to wonder how much longer they can go without chasing their production curve (lower prices mean you must sell more to make the same revenue stream). This week’s EIA Petroleum Status report saw a draw of 1.8 million barrels from crude stocks, down from last week’s 5.2 million barrel draw, and is also helping give bulls their conviction in the most recent rally in crude prices.

From a technical perspective, June crude futures are heading into a key psychological level at the 50.00 handle, coupled with 50% Fibonacci resistance at 49.50 and trend line resistance drawn against prior lows. In my prior article, I mentioned the 100% to 123.6% Fibonacci extension support, that sparked the rally back to test the broken trend line support (now being tested as resistance) into the 49 handle. This bounce has come to fruition, and it’s now up to the bears to defend their levels. While below 50.85, I expect June crude to continue lower, and test towards the 40.00 to 41.00 area (the low end of its trading range since August of 2016). This is a proverbial moment of truth for the crude market, and there are plenty of catalysts for change to get things rolling.


Jun ’17 Crude Light Daily Chart

Jun '17 Crude Light Daily Chart

Dan Hussey