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Jim Hyerczyk

Jim Hyerczyk

Fundamental and technical analyst with 30 years experience.

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How To Play The WTI Rally

Deepwater

January West Texas Intermediate crude oil futures are in a position to post another strong close on the weekly chart. Speculation that the OPEC-led program to cut production, trim the global supply and stabilize prices would be extended beyond its March 2018 deadline has laid the groundwork for the current rally.

Stripping out this speculative event and looking at the supply/demand numbers, we’re probably looking at a mixed or sideways market. With the key OPEC meeting scheduled for November 30, the concern for traders should be whether speculators will be able to hold on to current gains for most of this month. There is the possibility that if the rally continues into this meeting and an extension is agreed upon, it may turn into a “buy the rumor, sell the fact” event.

So essentially, over the next three weeks, traders are going to have to decide whether to continue to buy strength or play for a pullback into support. This clash between traders who prefer to play momentum and those who seek value could actually lead to a two-sided trade over the near-term.

Traders have been in this position before. Earlier in the year, they faced a similar challenge when a hedge fund dominated rally drove prices higher for several weeks. The rally died when the hedge funds stopped buying.

Hedge funds are also driving this market higher so it will be up to them to extend the gains beyond recent highs. They tend to be momentum traders so as long as…

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