U.S. West Texas Intermediate crude oil futures are in trouble at the end of the week amid concerns over rising new coronavirus cases in the United States and China. Furthermore, there are renewed worries over a possible increase in U.S. crude oil production now that prices have recovered even though crude stockpiles are sitting at a record high.
The tone is turning bearish as investors continue to react to the surge in coronavirus cases although most traders don't believe a second-wave of infections will be as damaging to the economy as the first-wave. The price action suggests a major price adjustment could be taking place. In the worst-case scenario, the crude oil markets could retrace 50% to 61.8% of the first rally.
Meanwhile, a new survey by the Dallas Federal Reserve Bank showed more than half of oil executives who cut production expect to resume some output by the end of July. This news is helping to keep a lid on prices early Friday.
Renewed COVID-19 Concerns
Worries about a second wave of COVID-19 cases in several U.S. states, where lockdowns had eased, and a rapid spread of infections in South America and South Asia are expected to keep a lid on fuel demand, traders said. The fear is that even if lockdowns are eased, people will stay home because of the perceived health risks.
Qantas Airways said on Thursday it expected little revival in international travel until at least July 2021, as it slashed a fifth of its workforce and grounded…
U.S. West Texas Intermediate crude oil futures are in trouble at the end of the week amid concerns over rising new coronavirus cases in the United States and China. Furthermore, there are renewed worries over a possible increase in U.S. crude oil production now that prices have recovered even though crude stockpiles are sitting at a record high.
The tone is turning bearish as investors continue to react to the surge in coronavirus cases although most traders don't believe a second-wave of infections will be as damaging to the economy as the first-wave. The price action suggests a major price adjustment could be taking place. In the worst-case scenario, the crude oil markets could retrace 50% to 61.8% of the first rally.
Meanwhile, a new survey by the Dallas Federal Reserve Bank showed more than half of oil executives who cut production expect to resume some output by the end of July. This news is helping to keep a lid on prices early Friday.
Renewed COVID-19 Concerns
Worries about a second wave of COVID-19 cases in several U.S. states, where lockdowns had eased, and a rapid spread of infections in South America and South Asia are expected to keep a lid on fuel demand, traders said. The fear is that even if lockdowns are eased, people will stay home because of the perceived health risks.
Qantas Airways said on Thursday it expected little revival in international travel until at least July 2021, as it slashed a fifth of its workforce and grounded 100 planes.
"It highlights the reality that we're talking years before international aviation recovers - probably three to four years," National Australia Bank's head of commodity research, Lachlan Shaw said.
EIA Report Confirms Crude Inventory Build
The U.S. Energy Information Administration (EIA) reported on Wednesday a 1.4-million-barrel increase in crude oil inventories for the week to June 19, with fuel inventories booking mixed results. Traders were looking for a build of 1.2-million-barrels.
The EIA also reported a draw of 1.7 million barrels of gasoline for the week-ended June 19, compared with a decline of the same size for the previous week. Gasoline production last week averaged 8.8 million barrels daily, up from 8.4 million barrels daily a week earlier.
In distillate fuels, where demand has been slower to recover than in gasoline, the EIA reported an inventory rise of 249,000 barrels for the week to June 19, up from a 1.4-million-barrel draw reported for the previous week. Production of distillates averaged 4.6 million bpd last week, compared with 4.5 million bpd a week earlier.
Refinery runs averaged 13.8 million bpd, up from 13.6 million bpd a week earlier.
Weekly Technical Analysis
Weekly August WTI Crude Oil
Trend Indicator Analysis
The main trend is down according to the weekly swing chart, however, momentum has been trending higher since the week-ending April 24. A trade through $41.63 will mean the momentum is getting stronger.
The main trend will actually turn up on a trade through $54.71. A move through $20.28 will signal a resumption of the downtrend.
The minor trend is up. This is controlling the upside momentum. A move through $41.63 will indicate the buying is getting stronger. A trade through $34.66 will change the minor trend to down. This will shift momentum to the downside.
The main range is $62.21 to $20.28. Its retracement zone at $41.25 to $46.19 is resistance. This zone stopped the rally this week.
The intermediate range is $54.71 to $20.28. Its retracement zone is $37.50 to $41.56. This is also resistance.
The combination of the two zones creates a strong resistance cluster at $41.25 to $41.56, which is pretty close to where the rally stopped at $41.63.
The short-term range is $20.28 to $41.63. If the minor trend changes to down then its retracement zone at $30.96 to $28.44 will become the primary downside target.
Weekly Technical Forecast
Based on this week's price action, the direction of the August WTI crude oil futures contract the week-ending July 3 will be determined by trader reaction to the downtrending Gann angle at $37.21.
Bullish Scenario
A sustained move over $37.21 will indicate the presence of buyers. Overcoming the 50% level at $37.50 will indicate the buying is getting stronger.
Crossing to the strong side of the uptrending Gann angle at $40.28 will put the market in a position to extend the rally into $41.25 to $41.63. Overtaking $41.63 could trigger an acceleration to the upside with $46.19 the next likely upside target.
Bearish Scenario
A sustained move under $37.21 will signal the presence of sellers. This could trigger a break into the minor bottom at $34.66. Taking out this level will change the minor trend to down and could trigger an acceleration to the downside with the short-term 50% level at $30.96 the next likely target.
Technical Summary
The market is in a position to post its second potentially bearish closing price reversal top in three weeks. This is a strong indication that the selling is greater than the buying at current price levels.
If confirmed next week, sellers could drive the market lower for at least two to three weeks with the primary downside target the 50% level at $30.96. We are looking for this move.
Meanwhile, a trade through $41.63 will negate the chart pattern and could trigger an acceleration to the upside.