U.S. West Texas Intermediate and international Brent crude oil futures are trading higher on Friday and for that matter for the week after the latter went on a wild ride the previous session. The markets are being boosted shortly after the regular session opening after a better-than-expected U.S. Non-Farm Payrolls report seems to have taken care of worries over demand and a possible U.S. recession later in the year.
On Thursday, there was a slight divergence in the two futures contracts with Brent hitting $70 per barrel for the first time in nearly five months before settling slightly higher and WTI crude oil struggling most of the session before closing lower.
The volatile price action was fueled by trader reaction to the different fundamental factors driving the price action. Expectations of tight global supply underpinned both futures contracts, however, pressure from rising U.S. production based on Wednesday’s U.S. Energy Information Administration’s weekly inventories report, which showed an unexpected build, helped drive Brent higher and WTI lower.
Brent could continue to outpace WTI over the near-term as supply tightens. Furthermore, the international-benchmark has some catching up to do. Global benchmark Brent has gained 30 percent this year, while WTI has gained 38 percent. Prices have been underpinned by tightening global supplies and signs of increased demand.
News that trade talks between the United States and China made “good headway” continues to point toward an improving demand picture.
The threat of war in Libya between the North African country’s main political factions could also underpin prices, especially Brent crude as it could lead to involuntary supply disruptions.
U.S. pressure on Iran is increasing, with a senior Trump administration official saying earlier this week that Washington is considering more sanctions on the Middle Eastern country. This should lead to a further tightening of supply.
Weekly Fundamental Forecast
We could see another mixed performance between Brent and WTI, but the longer-term bias remains to the upside. The supply restrictions caused by the OPEC-led supply cuts and the U.S. sanctions against Iran and Venezuela are the main price drivers. However, after this week’s better-than-expected economic numbers from China, the demand picture has improved dramatically. The major concern that could limit the upside for WTI crude oil is rising U.S. production. With supply tightening, a jump in U.S. production could cause Brent to post stronger gains this week.
Two wildcards that could trigger a price spike to the upside are the situation in Libya that could lead to supply disruptions, and the announcement of a trade deal between the U.S. and China. Everyone seems to know a deal is imminent; nonetheless, the news could bring in a lot of aggressive speculative buyers.
Weekly May West Texas Intermediate Crude Oil
The main trend is up according to the weekly swing chart. The uptrend is safe with the nearest main top coming in at $75.80. The trend will change to down on a trade through $54.87.
The main range is $75.80 to $43.37. The market is currently trading inside its retracement zone at $59.63 to $63.45. This zone is controlling the longer-term direction of the market.
Based on the current price action, the direction of the May WTI crude oil market this week is likely to be determined by trader reaction to the downtrending Gann angle at $62.30.
Taking out $62.30 and sustaining the move will put the market in a bullish position with $63.45 the next target. Watch for a technical bounce on the first test of $63.45, but buyers can overcome this level then look for an acceleration to the upside with the next major target angle coming in at $69.05.
On the bearish side, the inability to overcome $62.30 will signal the presence of sellers. If this move creates enough downside momentums then look for the selling to possibly extend into the 50% level at $59.63. This price will have to hold or prices could retreat into the next uptrending Gann angle at $58.46.
Weekly June Brent Crude Oil
The main trend is up on the weekly swing chart. The next major upside target is the main top at $84.29. A trade through $64.00 will change the main trend to down.
The main range is $84.29 to $51.51. Its retracement zone at $71.77 to .67.90 is currently being tested. This zone is controlling the longer-term trend.
Look for buyers to take a run at the upper end of the range at $71.77. We could see resistance on the first test of this level, but overtaking it could trigger an acceleration to the upside.
The first sign of weakness will be a trade through $67.90. This won’t change the trend but it will indicate the presence of strong sellers.