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Jim Hyerczyk

Jim Hyerczyk

Fundamental and technical analyst with 30 years experience.

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Without Catalyst, Oil Remains Range-Bound

Early Friday, January crude oil futures are trying to recapture its gains from earlier in the week. After a firm trade on Monday, prices fell over doubts about whether the planned production cuts were enough to reduce supply and stabilize prices.

After three days of lower-lows and two consecutive lower closes, crude oil prices rebounded on Thursday to finish higher for the session. The turnaround was driven by growing optimism that non-OPEC producers might agree to cut output following a cartel agreement to limit production.

Oil traders have already moved past the U.S. Energy Information Administration report and are back to watching an OPEC meeting for clues as to the next direction for prices. Oil producers are scheduled to meet in Vienna on Saturday to see if non-OPEC countries will cut production to reduce a global supply glut that has pressured prices for more than two years.

So we are reduced to playing off a 50/50 news event for the second time in three weeks.

Let’s just state the obvious. If the non-OPEC members come in with acceptable numbers then crude is likely to rise. If they disappoint then crude is likely to break. However, I don’t think the deal will collapse. It will just have to be tweaked again and again until they get it right.

If calling the trade in crude oil a 50/50 proposition sounds like a cop-out then just take a look at the January WTI crude oil chart and you’ll see that the market has been range bound since the April – June rally with prices straddling 50% of the 2016 range most of the year.

That’s about as flat and indecisive as a market can get during a calendar year.

January WTI Crude Oil

(Click to enlarge)

Technical Analysis

The main trend is down according to the weekly swing chart. The resistance is $52.74 and $53.72. The support is $42.95 and $42.34.

The nearly two-year range is $66.20 to $34.55. Its retracement zone is $50.38 to $54.11. The last two tops at $52.74 and $53.72 were formed inside this range.

The one-year range is $34.55 to $53.72. Its retracement zone is $44.14 to $41.87. The last two bottoms were formed inside this range at $42.95 and $42.34.

What’s it all mean? It means January crude oil is stuck in a range. I can keep subdividing each short-term range to find all kinds of pivot prices, but it’s probably safe to say that the major pivot or 50% level is $50.38. Longer-term traders can watch the price action and read the order flow at this level.

Generally speaking, look for a bullish tone to develop on a sustained move over $50.38 and a bearish tone to develop on a sustained move under this level.

A sustained move over $50.38 means taking out the main tops at $52.74 and $53.72 and the main Fibonacci level at $54.11. This level is the trigger point for a breakout to the upside.

If sellers can drive the market through $50.38 with conviction then according to the weekly swing chart, January crude oil could plunge to $44.14 to $41.87. The trigger point for an acceleration to the downside is $41.87.

Forecast

Based on the current price at $50.84 and filtering out the short-term levels, I have to conclude that January crude oil will remain range bound as long as it stays between $54.11 and $41.87. This is the range it has traded inside since the week-ending April 22.

Further analysis shows that holding above $50.38 will give the market an upside bias inside this range. Falling below this price will give crude oil a downside bias.

January Natural Gas

(Click to enlarge)

January Natural Gas futures are trading inside a major range bounded by $3.593 and $3.851. This zone is controlling the near-term direction of the market.

This is a balance area. Trader reaction to $3.593 and $3.851 will tell us if the buyers are continuing to come in, or if the sellers are retaking control.

A sustained move over $3.851 will indicate the presence of buyers. This is the trigger point for a rally to the psychological $4.00 level.

A sustained move under $3.593 will signal the presence of sellers. This is the trigger point for an acceleration into $3.200.

We have to look at the possibility of a two-sided trade at this time because we are in a weather market. The current forecast calls for bitterly cold temperatures in most of the country until next Friday. After December 16 is still a guess.

A lingering Arctic Dome will underpin prices. The return of unseasonably warm temperatures will be bearish.




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