U.S. West Texas Intermediate crude oil futures are edging lower on Friday as traders await the outcome of a meeting of International Energy Agency (IEA) member nations set to discuss a release of emergency oil reserves alongside a huge planned release by the United States.
The U.S. benchmark is on course for a 12%-13% weekly decline – the sharpest in almost two years, after an earlier surge driven by the Ukraine conflict had seen prices rise by more than 30%.
The limited price action suggests traders are still digesting the bearish news that drove prices sharply lower the previous session. On Thursday, U.S. President Joe Biden announced a release of 1 million barrels per day (bpd) for six months, starting in May, the largest release ever from the U.S. Strategic Petroleum Reserve (SPR).
On paper the news is short-term bearish, however, we have some doubts as to whether the SPR release will have a long-term bearish influence on prices. The daily flood of U.S. crude into supply will not change the fact that the market will continue to struggle to find enough support over the next several months. With 3 million bpd of Russian oil expected to be wiped off the books, the 1 million bpd release will not be enough to offset the loss of Russian oil.
The limited follow-through to the downside early Friday suggests it may take additional help from other countries to drive crude oil prices substantially lower, but this is a possibility since the International…
U.S. West Texas Intermediate crude oil futures are edging lower on Friday as traders await the outcome of a meeting of International Energy Agency (IEA) member nations set to discuss a release of emergency oil reserves alongside a huge planned release by the United States.
The U.S. benchmark is on course for a 12%-13% weekly decline – the sharpest in almost two years, after an earlier surge driven by the Ukraine conflict had seen prices rise by more than 30%.
The limited price action suggests traders are still digesting the bearish news that drove prices sharply lower the previous session. On Thursday, U.S. President Joe Biden announced a release of 1 million barrels per day (bpd) for six months, starting in May, the largest release ever from the U.S. Strategic Petroleum Reserve (SPR).
On paper the news is short-term bearish, however, we have some doubts as to whether the SPR release will have a long-term bearish influence on prices. The daily flood of U.S. crude into supply will not change the fact that the market will continue to struggle to find enough support over the next several months. With 3 million bpd of Russian oil expected to be wiped off the books, the 1 million bpd release will not be enough to offset the loss of Russian oil.
The limited follow-through to the downside early Friday suggests it may take additional help from other countries to drive crude oil prices substantially lower, but this is a possibility since the International Energy Agency (IEA) member countries are meeting on Friday to decide on a collective oil release. Its decision could have a strong short-term influence on prices.
Weekly Technical Analysis
Weekly May WTI Crude Oil
Trend Indicator Analysis
The main trend is up according to the weekly swing chart, however, momentum has been trending lower, since the confirmation of the closing price reversal top from the week-ending March 11.
A trade through $126.42 will negate the bearish chart pattern and signal a resumption of the uptrend. A move through $61.86 will change the main trend to down. This is highly unlikely, however.
The minor trend is also up. A trade through $92.20 will change the minor trend to down. This will confirm the shift in momentum.
Retracement Level Analysis
The major resistance remains the longer-term retracement zone at $111.45 to $136.92. This zone was tested again this week with the 50% level at $111.45 straddled early in the week.
The first minor range is $126.42 to $92.20. Its retracement zone at $109.31 to $113.35 is providing resistance. This zone stopped the selling with this week’s high at $112.93 falling inside this zone.
The bearish reaction to the resistance levels has put the market in a position to retest the support zone at $94.14 to $86.52. This zone stopped the selling two weeks ago at $92.20.
The main range is $34.04 to $126.42. If $86.52 fails as support then look for the selling to extend into its retracement zone at $80.23 to $69.33 is the major support zone.
Weekly Technical Forecast
The direction of the May WTI crude oil market the week-ending April 8 will be determined by trader reaction to $104.42.
Bullish Scenario
A sustained move over $104.42 will indicate the presence of buyers. If this move creates enough upside momentum then look for a retest of the resistance cluster at $109.31 to $113.35.
Crossing to the strong side of $113.35 will indicate the buying is getting stronger. This could trigger an acceleration through $116.64 with $126.42 the next major target.
Bearish Scenario
A sustained move under $104.42 will signal the presence of sellers. This could lead to another test of the retracement zone at $94.14 to $86.52.
If the selling pressure is strong enough to take out $92.20 the minor trend will change to down and the shift in momentum will be confirmed.
Taking out $86.52 will indicate the selling pressure is getting stronger. This could extend the weakness into the major retracement zone at $80.23 to $69.33. This is an important value area so we expect to see new buyers show up on a test of this zone. Furthermore, new buyers will be trying to defend the main bottom at $61.86.
Short-Term Outlook
Technically, this week’s price action solidified the strength of the resistance levels at $109.31 to 113.35. The sell-off from this area was strong enough to put the market in a position to challenge the previously tested support zone at $94.14 to $86.52 and the minor bottom at $92.20.
The retracement zone at $94.14 to $86.52 is a value area so buyers could show up on a test of this zone. However, if it fails then it will mean that buyers are playing for an even better price somewhere between $80.23 and $69.33.
The longer-term fundamentals are still bullish, but traders aren’t likely to chase the market higher unless there is a major blow to supply. With long-term traders having to deal with a slew of short-term bearish fundamentals, it looks as if they have shifted into a “buy the dip” mode. This supports our assessment that news buyers will likely be waiting inside $94.14 to $86.52, and especially at $80.23 to $69.33.
If there is a surprise hit to supply then the only way we’ll be able to confirm its importance is on a clean breakout over $116.64.
Fundamentally, Biden’s SPR release announcement amounts to “too little, too late”. Biden’s 180 million-barrel release is the equivalent to about two days of global demand, and marks the third time Washington has tapped the SPR in the past six months.
It will more than cover oil exports to the United States from Russia, which Biden banned this month.
But the release will fall short of a loss of about 3 million bpd of Russian oil which the International Energy Agency (IEA) estimates will be lost to global markets amid Western sanctions and as global buyers avoid the oil.
Furthermore, the American Petroleum Institute, the sector’s main lobbying group, said the SPR tap could provide some near term supply relief, but was not a long-term solution.
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By the way he just cost every American by releasing crude that cost approximately $29.00/bbl. To replenish it no one knows what it will cost but a drunk monkey can figure out it will be more than 29 bucks!
By the way he just cost every American by releasing crude that cost approximately $29.00/bbl. To replenish it no one knows what it will cost but a drunk monkey can figure out it will be more than 29 bucks!