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Jim Hyerczyk

Jim Hyerczyk

Fundamental and technical analyst with 30 years experience.

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The Deciding Factor For Oil Prices Next Week


September Crude Oil Weekly Recap

September U.S. West Texas Intermediate crude oil futures are currently in a position to finish lower for the week as investors react to a rise in U.S. production and reports from earlier in the week of a jump in OPEC production. The deciding factor is likely to be the Baker Hughes rig count.

According to the U.S. Energy Information Administration, U.S. crude inventories fell by 6.3 million barrels in the week ended June 30. Traders were looking for a draw of about 2.4 million barrels. Total inventories stand at 502.9 million barrels. Gasoline stocks also fell by 3.7 million barrels, to 237.3 million barrels.

This week’s report suggests increased demand for gasoline, but this news was offset by a 1 percent rise in weekly U.S. oil production to 9.34 million barrels per day (bpd).

Earlier in the week, it was reported that OPEC exported 25.92 million barrels per day (bpd) in June. This is 450,000 bpd more than in May and 1.9 million bpd more than a year earlier.

In other news, Saudi Arabia announced price cuts to Asia beginning in August. Russia said it was not interested in cutting production further.

Crude oil is under pressure this week because of the increased U.S. production. Last week, the EIA reported a drop in U.S. production, triggering an extension of the short-covering rally. Most bearish traders knew that this number did not represent a trend and was most likely caused by tropical storms and maintenance. Yesterday’s number suggests that U.S. production is back on track to increase further.

The key report at the end of the week is the rig count. Last week, it showed a decline of 2 rigs after increasing for 23 weeks. The market will react to this report because another decline will be a sign that a trend is developing.

The news of another drop in the rig count may not trigger a short-covering rally but it should stop the selling. If the rig count increases by more than 2 then crude oil could get pounded into the close.

Weekly September Crude Oil Technical Analysis

(Click to enlarge)

The main trend is down according to the weekly swing chart.

The main range is $52.38 to $42.27. Its retracement zone at $47.33 to $48.52 stopped the rally this week when the market traded $47.45.

The short-term range is $42.27 to $47.45. Its retracement zone is $44.86 to $44.25. Trader reaction to this zone should determine whether the market moves higher or lower next week.

Aggressive counter-trend buyers may show up to try to stop the price slide and establish a potentially bullish secondary higher bottom. Bearish trend traders are going to try to take out this zone in an effort to make $47.45 a new main top.

Look for a downside bias all week as long as September crude oil remains under $44.25. Look for an upside bias to develop on a sustained move over $44.86.

Weekly September Unleaded Gasoline Technical Analysis

(Click to enlarge) 

The series of lower tops and lower bottoms tells us the main trend is down.

The main range is $1.6501 to $1.3805. Its retracement zone is $1.5153 to $1.5471. This zone provided resistance this week, stopping the rally at $1.5278.

The short-term range is $1.3805 to $1.5278. Its retracement zone at $1.4541 to $1.4367 is the primary downside target. Trader reaction to this zone will determine the near-term direction of the market.

Aggressive counter-trend buyers are going to come in on a test of the short-term retracement zone in an effort to form a potentially bullish secondary higher bottom.

Trend traders are going to try to take out the retracement zone in an effort to make $1.5278 and new main top. This would make $1.3805 the new downside target.

Look for an upside bias to develop this week if buyers can sustain a rally over $1.4541. Look for a strong downside bias if sellers can sustain a move under $1.4367.

Weekly September Crude Oil and Weekly September Unleaded Combination

The Weekly September Crude Oil chart and the Weekly September Unleaded Gasoline charts are out of sync. This tells us that a successful test of the retracement zone by the gasoline market could stop the selling in crude oil and trigger a turnaround in the market.

Watch the reaction by September Unleaded Gasoline on its test of $1.4541 to $1.4367. If buyers come in to stop the selling then September Crude Oil is likely to find support and try to overcome its retracement zone at $44.86 to $44.25.

Look for an extremely weak market next week if gasoline falls below $1.4367 and crude oil remains below $44.25.

Look for a strong upside bias to develop if gasoline holds above $1.4541 and crude oil moves above $44.86.

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