U.S. West Texas Intermediate crude oil futures are edging lower Friday on profit-taking ahead of the week-end and next week’s Christmas holiday. Nevertheless, the market is in a position to finish higher for a third consecutive week on the back of an improving outlook for global demand growth.
As we near the end of the year, one concern for traders was not the impact of the trade war on the global economy, Brexit or a U.S. recession, but rather the thin trading volume. Traders remarked that not even the news of President Trump’s impeachment by the U.S. House of Representatives rattled oil traders.
Several factors helped to underpin crude oil prices this week including lower U.S. supply, the OPEC+ production cuts and demand growth expectations
U.S. Energy Information Administration Weekly Inventories Report
On Wednesday, the EIA reported that U.S. crude supplies fell by 1.1 million barrels for the week-ending December 13. Traders were looking for a decrease of 1.5 to 2.5 million barrels during the period.
The EIA data also showed supply increases of 2.5 million barrels for gasoline and 1.5 million barrels for distillates. Supply for gasoline was expected to climb 2.4 million barrels and distillate inventory was forecast to have risen by 600,000 barrels.
OPEC and Allies Agree to Deeper Production Cuts
Two weeks ago, OPEC and other non-OPEC producers such as Russia agreed to deepen production cuts by a further 500,000 barrels…
U.S. West Texas Intermediate crude oil futures are edging lower Friday on profit-taking ahead of the week-end and next week’s Christmas holiday. Nevertheless, the market is in a position to finish higher for a third consecutive week on the back of an improving outlook for global demand growth.
As we near the end of the year, one concern for traders was not the impact of the trade war on the global economy, Brexit or a U.S. recession, but rather the thin trading volume. Traders remarked that not even the news of President Trump’s impeachment by the U.S. House of Representatives rattled oil traders.
Several factors helped to underpin crude oil prices this week including lower U.S. supply, the OPEC+ production cuts and demand growth expectations
U.S. Energy Information Administration Weekly Inventories Report
On Wednesday, the EIA reported that U.S. crude supplies fell by 1.1 million barrels for the week-ending December 13. Traders were looking for a decrease of 1.5 to 2.5 million barrels during the period.
The EIA data also showed supply increases of 2.5 million barrels for gasoline and 1.5 million barrels for distillates. Supply for gasoline was expected to climb 2.4 million barrels and distillate inventory was forecast to have risen by 600,000 barrels.
OPEC and Allies Agree to Deeper Production Cuts
Two weeks ago, OPEC and other non-OPEC producers such as Russia agreed to deepen production cuts by a further 500,000 barrels per day (bpd) from January 1 on top of previous reductions of 1.2 million barrels per day.
Upbeat Demand Growth Expectations
Given the trade agreement between the United States and China, traders have turned more optimistic over increased future demand.
Prices have been lifted since last Friday’s announcement of the trade deal raised hopes for increased demand growth. On Thursday, China announced a list of import tariff exemptions for six oil and chemical products from the United States, further boosting the demand outlook.
Furthermore, sentiment was uplifted when Treasury Secretary Steven Mnuchin said Thursday that he had no doubt trade negotiators representing the U.S. and China would sign their so-called “phase one” trade deal in early January.
Technical Analysis
Weekly February WTI Crude Oil Technical Analysis
Weekly Trend Analysis
The main trend is up according to the weekly swing chart. The uptrend was reaffirmed this week when buyers took out the main top at $60.37 from the week-ending September 20.
The main trend will change to down on a trade through $50.44. This is highly unlikely. However, the market is up 11 weeks from its last main bottom, which put it in a position to form a potentially bearish closing price reversal top.
This higher-high, lower-close chart pattern, will not indicate a change in trend, but it could trigger the start of a 2 to 3 week correction.
The main range $72.22 to $45.60. Its retracement zone at $58.94 to $62.09 is currently being tested. This zone is controlling the longer-term direction of the market.
The short-term range is $45.60 to $63.87. Its retracement zone at $54.74 to $52.58 is support.
Weekly Trend Forecast
Given the uptrend and the strong upside momentum, the first target the week-ending December 27 is likely the main Fibonacci level at $62.09. Look for profit-taking and counter-trend selling on the initial test of this level.
Overcoming and sustaining a rally over $62.09 will indicate the buying is getting stronger. This could trigger an acceleration to the upside with the next target the main top from the week-ending April 26 at $63.87.
On the downside, the first potential support target is the 50% level at $58.94. A failure to hold this level will indicate the selling is getting stronger. This is not necessarily bearish. It may only indicate that buyers are looking for value and are not willing to chase the market higher at current price levels.
Conclusion
Due to holidays next week and the week after, volume is expected to remain well-below average which will make it difficult to buy strength and sell weakness successfully. Try to avoid getting caught in bull and bear traps on the daily chart.
The key area to watch for longer-term traders is $58.94 to $62.09. Look for an upside bias to develop on a sustained move over $62.09, and for a downside bias to develop on a sustained move under $58.94.
Trading between the 50% level at $58.94 and the 61.8% level at $62.09 will indicate trader indecision, which should lead to a rangebound trade.
