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Momentum Slows In Oil Markets As Inventories Soar

U.S. West Texas Intermediate and international-benchmark crude oil futures are in a position to finish lower for the week. WTI is down about 2.8% and Brent is off by about 2.2%. Sentiment in both markets is pointing lower, having shifted from positive earlier in the week on reports of tightening supply, to negative for the week on renewed concerns over rising U.S. production and its impact on global supplies.

Both futures contracts came close to testing or taking out their 200-day moving averages, which would have wreaked havoc for traders since many of the hedge and commodity funds have protective stops parked under this bullish technical indicator.

Crude Oil

(Click to enlarge)

Crude oil fell to a one-month low on Thursday as traders continue to react to rising U.S. crude stockpiles and their potential impact on the OPEC-led attempt to trim the global supply and stabilize prices. The intense selling pressure, which began last week, materialized despite escalating political turmoil in Venezuela and the expanded sanctions against Iran that are designed to drive the nation’s exports to zero.

To recap Wednesday’s U.S. Energy Information Administration’s weekly inventories report for the week-ending April 26, U.S. crude stockpiles surged 9.9 million barrels, while U.S. oil production ticked up to a record 12.3 million barrels per day. Furthermore, the report showed that U.S. stockpiles have risen in five of the last six weeks, dimming reports that the global supplies are getting tighter.

New Worries on the Horizon

On Thursday, reports circulated that Asian refineries are asking Saudi Arabia for more crude oil in the wake of the expansion of sanctions on Iran. If the Saudis are accommodative, then prices should tumble further.

There are also reports that refiners are expressing concerns over supply shortages caused by the U.S. sanctions against Venezuela and Iran.

Finally, in Europe, Poland said it will release strategic oil supplies. This is to provide some relief to refiners after the country suspended shipments from Russia after contaminated Russian crude was discovered in a major pipeline system.

Is Libya the Wildcard for Bulls?

With support eroding and prices nearly in a free-fall, it may take an escalation in the military dispute in Libya to provide some support especially if the turmoil causes supply disruptions.

The Suspense is Over

According to reports, the latest round of U.S. sanctions will likely remove about 700,000 to 800,000 barrels per from the market (I’m really enjoying how this figure keeps changing). Saudi Arabia, Russia and other allies have been removing about 1.2 million bpd from the markets since January 1. This has helped fuel the 40% rally.

President Trump is counting on Saudi Arabia and its friends to fill in the supply gap in the coming months. If they are accommodating, then prices could plunge further.

Furthermore, OPEC and its allies meet at the end of next month to discuss whether to extend the six-month deal beyond June. Russia is saying it may leave the group and pursue more market share. This could collapse prices even further.

Technical Analysis

Weekly June West Texas Intermediate Crude Oil

Weekly Technical Analyst

WTI

(Click to enlarge)

The main trend is up according to the weekly swing chart. However, momentum has been trending lower since the formation of last week’s potentially bearish closing price reversal top and subsequent follow-through confirmation this week. A trade through $66.60 will negate the chart pattern and signal a resumption of the uptrend.

The uptrend is safe for now. A move through $55.31 will change the main trend to down.

The main range is $75.65 to $43.80. Its retracement zone at $59.73 to $63.48 is controlling the longer-term direction of the market. WTI is currently trading inside this range.

The minor range is $43.80 to $66.60. If the downside momentum continues then look for the selling to possible extend into $55.20 to $52.51.

Weekly Technical Forecast

Based on this week’s price action, the direction of the June WTI crude oil futures contract will be determined by trader reaction to the uptrending Gann angle at $62.80.

Bullish Scenario

A sustained move over $62.80 will indicate the presence of buyers. This could trigger a retest of the Fibonacci level at $63.48.

If buyers can regain $63.48 then look for a potential accelerate to the upside with $66.60 the next potential upside target.

Bearish Scenario

Trading on the weak side of the uptrending Gann angle at $62.80 will signal the presence of sellers. This could trigger a break into $60.15 then $59.73.

The weekly chart indicates that there is plenty of room to the downside under $59.73 so be prepared for an acceleration to the downside if this price level fails as support. Prices could plunge over the near-term into $55.31 to $55.20 over the near-term.


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