RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

WTI crude oil inventories fell by 900k barrels in the most recent EIA Petroleum Status Report released on 5/3/2017.  This draw on inventories was slightly smaller than expected, and marks the fourth consecutive draw on oil stockpiles.  The market seems to be discounting (albeit slightly) bullish news, and the trade may be pricing in the anticipation of increased oil production to replenish reserves.  With global oil markets anticipating an extension in OPEC production cuts, it will be important for traders to keep eyes on the news wires for continued consensus from OPEC nations in renewing their supportive measures.  Continued tensions in both the Korean peninsula and the Middle East should also be monitored, as “hot conflicts” are often followed by a rise in oil prices and considered a strong geopolitical event risk.

From a technical perspective, June ’17 crude oil futures have broken below the key trend line support, drawn against April ’16, August ’16, November ’16, and March ’17 lows in the continuous contract (see the magenta line in the chart below).  This trend line offered support four times in total, most recently this last March, and below it opens the door for WTI crude futures to test the low end of its two year trading range.  In the near term, the three wave pullback in crude futures has found the 100% Fibonacci extension and 61.8% Fibonacci retracement lines clustered at the 45.30 area.  The previously mentioned broken trend line will likely now be tested as resistance, and continuation lower would confirm the bears are in clear control.

In my opinion, there was a clear cut opportunity for bulls to defend a key technical area here above the 47.00 handle, and above trend line support at 48.00.  As I mentioned in last week’s article, failure of this key area would open the door for continued declines and a pullback into the lower bounds of crude multiyear range.  That breakdown has now occurred, and while the selling could be getting a bit overdone, sellers can utilize failed bulls levels to keep their control in the near term.  The bulls had every opportunity to maintain the trend higher, but it now appears possession has change hands, and it’s the bear’s ball to loose.


Crude Light 480 min Chart

Crude Light 480 min Chart

Dan Hussey