RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

This week the EIA Petroleum Status Report shaved off an aggressive -5.8-million-barrel draw, taking inventories to 408.4 million barrels (11.8% below their levels one year ago).  As it can be expected from this bullish report, WTI crude prices have responded in kind, trading $5.00 higher from their lows earlier this week.  This was compounded by the fact that US refineries were operating at 98.1% of their capacity, unchanged from last week and very near all-time highs for production (which translates directly to crude consumption).  The heightened US refinery operations, alongside a sizable draw on crude oil inventories, is confirming the strength in WTI crude prices this last week.

From a technical perspective, WTI crude oil futures found a substantial bounce, which is being sustained from the 65.26 inflection zone.  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” for 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 (after finding 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 near term.  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 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.  Price action over the last several months has continued to hold the market above this key line in the sand, 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.  This week’s rebound in the price of WTI crude, has also correlated with a drop in the value of the USD, and continued USD weakness should be bullish for most commodity prices (with potentially energies leading the way).  Keep a watchful eye and heightened ear for more comments to come out of the US Fed – Jackson Hole meetings, as a clearer picture for US monetary / interest rate policy could help shed a light on the inflation situation (and directly affect the price of commodities relative to USD).  

Crude Oil Daily Chart

Crude Oil Daily Chart

Dan Hussey