With reports circulating about U.S. crude oil supply near record levels, many traders have been asking "why isn't the price going down?" The problem could be that professionals haven't distributed enough futures contracts to the weaker speculators. Although June Crude Oil futures recently reached the high for the year at $104.10 in the face of rising supply, the current three week sell-off from this top may be an indication that the market has reached its peak.
According to the U.S. government, the amount of crude oil produced in the United States in April was the highest monthly figure recorded in more than 20 years. Citing an increase in U.S. crude oil production from inland shale basins, the Energy Information Administration said the monthly average production for April was 8.3 million barrels per day, the highest monthly average recorded since 1988.
The increase in production means the U.S. will import less oil from members of the Organization of Petroleum Exporting Countries. The EIA report also said crude oil production should average 8.5 million barrels per day for the year and increase to 9.2 bpd in 2015. If the forecast is correct, the 2015 production level will be the highest level since 1972.
From a technical perspective, the weekly main trend is up. If the market is forming a top then the next rally should fail inside a retracement zone. This would form a potentially bearish secondary lower top, perhaps setting up the market for a further decline.
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With reports circulating about U.S. crude oil supply near record levels, many traders have been asking "why isn't the price going down?" The problem could be that professionals haven't distributed enough futures contracts to the weaker speculators. Although June Crude Oil futures recently reached the high for the year at $104.10 in the face of rising supply, the current three week sell-off from this top may be an indication that the market has reached its peak.
According to the U.S. government, the amount of crude oil produced in the United States in April was the highest monthly figure recorded in more than 20 years. Citing an increase in U.S. crude oil production from inland shale basins, the Energy Information Administration said the monthly average production for April was 8.3 million barrels per day, the highest monthly average recorded since 1988.
The increase in production means the U.S. will import less oil from members of the Organization of Petroleum Exporting Countries. The EIA report also said crude oil production should average 8.5 million barrels per day for the year and increase to 9.2 bpd in 2015. If the forecast is correct, the 2015 production level will be the highest level since 1972.
From a technical perspective, the weekly main trend is up. If the market is forming a top then the next rally should fail inside a retracement zone. This would form a potentially bearish secondary lower top, perhaps setting up the market for a further decline.
A new short-term range may be forming between $104.10 and $98.75. The retracement zone formed by this range is $101.42 to $102.05. This is the next potential resistance zone and selling area. Following a rally back to the retracement zone, short-sellers would have to step up with enough power to stop the rally and trigger the start of a break.
A rally into the retracement zone represents the best counter-trend selling opportunity. More aggressive traders may find resistance at a downtrending angle at $100.10. Above the zone is another potential resistance angle at $102.10.
On the downside, crude has been hugging an uptrending angle from the $90.97 bottom at $99.97 this week. A failure at this angle will indicate weakness and lessen the likelihood of a rally back to the retracement zone.
From a fundamental perspective, near record supply should begin to exert pressure on the market. From a trader's perspective, a decision has to be made to sell a rally into a retracement zone to capture a good entry price, or to sell weakness, hoping to hit sell stops and attract aggressive short-sellers who have the orders to drive the market lower.
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