March West Texas Intermediate Crude Oil
March U.S. West Texas Intermediate crude oil futures continued to climb this week, aided by another drop in U.S. crude oil inventories.
On Wednesday, the U.S. Energy Information Administration reported that U.S. crude inventories fell for a record 10th straight week to the lowest since February 2015. Also supporting oil was the weaker U.S. Dollar which hit its lowest level since December 2014 against a basket of currencies.
Crude oil futures gave back earlier gains to finish lower on Thursday. Volatile swings in the U.S. Dollar weighed on crude oil prices after the WTI futures contract flirted with the $67.00 level. Traders also expressed concerns over high supply, rising U.S. production and worries over future demand.
For the second time in a little over a week, both WTI and Brent crude oil futures posted potentially bearish technical closing price reversal tops on the daily chart. This may be a sign that the selling is greater than the buying at current price levels or that the buying is not that strong.
On the weekly chart, the market is in a strong position to finish higher.
Weekly Technical Analysis
(Click to enlarge)
The main trend is up according to the weekly swing chart. Last week’s potentially bearish closing price reversal top was never confirmed and the rally resumed, negating the reversal signal and signaling a resumption of the uptrend.
The March WTI futures contract decisively crossed the major 50% level at $64.11. This level is new support. If this level continues to hold then the market may eventually test the next major target, the Fibonacci level at $70.17.
A Gann angle, moving up at a rate of $1.00 per day continues to provide support and guidance. This week, the angle is at $65.07. Next week, the angle comes in at $66.07.
A close over $65.07 this week will keep the upside momentum intact while a sustained move over $66.07 next week will signal that the buying is getting stronger.
If crude oil continues to follow the uptrending Gann angle, we could see a test of the $70.17 level by the end of February.
The first sign of weakness next week will be a sustained move under $66.07.
Trades should watch the price action and read the order flow at $66.07 all week because this Gann angle is controlling both the direction of the market and the speed of the rally.
Traders have gotten used to watching and reacting to the OPEC-led production cuts and the drawdowns in U.S. crude oil inventory, but a new factor may have entered the equation this week. This new factor is the U.S. Dollar.
Prices will receive support from a weaker dollar and meet resistance from a stronger dollar. The dollar was pressured this week by negative comments from Treasury Secretary Steven Mnuchin. His comments inadvertently underpinned crude oil prices. However, President Trump said he wanted a “stronger dollar”. This turned the dollar around on Thursday as well as crude oil prices.
I think the direction of the dollar will determine the direction of crude oil prices this week. A move in the dollar to the upside has to be strong enough to shake up the hedge funds who are sitting in massive long crude oil positions in order to generate a steep break in crude oil.
Traders are also starting to worry about U.S. production as it climbs towards 10 million barrels per day. Therefore, Friday’s rig count will also take on greater emphasis. A steep increase in the rig count could also be bearish for crude oil prices.
Trader reaction to the Gann angle at $66.07 is all we need this week to judge whether the buying or selling is getting stronger. Currently, the market is moving up at a pace of $1.00 per week. Pulling away from the Gann angle will indicate the buying is getting stronger and that the rate of weekly gains is picking up steam.
Falling under $66.07 will signal that the selling is getting stronger, or the buying is slowing. This won’t mean the trend is changing to down, but that the selling is greater than the buying at current price levels.
A sustained move under $64.11 will indicate that a correction is coming.