U.S. West Texas Intermediate and international-benchmark Brent crude oil managed to eke-out a small gain for the holiday-shortened week, but the volatile, two-sided price action indicated cracks may be developing in the bullish narrative.
Crude Oil Gains Limited
Despite hitting a new five-month high earlier in the week, it was Thursday's gains which prevented the crude oil markets from closing lower for the week. Nonetheless, this week's price action suggests a top-heavy market. However, we do realize that the below-average pre-holiday trade may have had an effect on trading.
For the week, June WTI crude oil settled at $64.07, down $0.05 or -0.08% and June Brent crude oil finished at $71.97, up $0.42 or +0.58%.
The news tended to lean to the bullish side late in the week with the markets underpinned by a drop in crude shipments from top exporter Saudi Arabia and a draw in U.S. oil inventories. Gains may have been limited by a stronger U.S. Dollar which tends to limit foreign demand for U.S. oil, and weaker U.S. equities which reduced demand for higher risk assets.
Supply Side News Mostly Supportive
Saudi Arabia's crude oil exports fell by 277,000 barrels per day just under 7 million bpd in February from the month before, according to data from the Joint Organizations Data Initiative.
On Wednesday, the EIA reported that U.S. crude inventories fell by 1.4 million barrels in the week-ending April 12. Traders were looking for a 1.6 million barrel build. Gasoline stockpiles fell 1.2 million barrels during the same time period, while distillate fuel inventories fell by 362,000 barrels.
The EIA also reported a gasoline production rate of 9.9 million barrels daily last week and a distillate fuel production rate of 4.8 million barrels daily. This compares with 10.2 million bpd of gasoline for the prior week and 5 million bpd for distillate fuel. Refinery throughput averaged 16.1 million bpd last week.
Additionally, U.S. imports dipped back towards the 6 million barrel per day mark while implied crude supply numbers remained firm.
Iran's crude exports have dropped in April to their lowest daily level this year, suggesting a reduction in buyer interest ahead of expected further pressure from Washington.
U.S. crude oil output from seven major shale formations was expected to rise by about 80,000 bpd in May to a record 8.46 million bpd, the EIA said earlier in the week.
Other News
According to General Electric's Baker Hughes energy services firm, U.S. energy firms this week reduced the number of oil rigs operating for the first time in three weeks as production growth forecasts from shale, the country's largest oil fields, continue to shrink. Drillers cut eight oil rigs in the week to April 18, bringing the total count down to 825.
Big Issues Facing Traders
Traders are facing two major issues at this time: Further pressure on Iran and whether OPEC and its allies, including Russia will continue the deal to reduce production.
Technical Analysis
Weekly June West Texas Intermediate Crude Oil Technical Analysis
The main trend is up according to the weekly swing chart. The uptrend was reaffirmed this week, but there was very little follow-through to the upside, suggesting weak buyers. A trade through $64.72 next week will signal a resumption of the uptrend.
The main trend is safe for now. The nearest main bottom is $55.31. A trade through this bottom will change the main trend to down.
The main range is $75.65 to $43.80. Its retracement zone at $63.48 to $59.73 is controlling the longer-term direction of the market. This area is also the most important support on the weekly chart.
Weekly Forecast
Based on the price action of the last two weeks and this week's close at $64.07, the direction of the June WTI crude oil market this week is likely to be determined by trader reaction to the Fibonacci price level at $63.48.
Bullish Scenario
A sustained move over $63.48 will indicate the presence of buyers. If this move generates enough upside momentum then look for traders to make a run at the next upside target at $68.40.
Bearish Scenario
A sustained move under $63.48 will signal the presence of sellers. This could trigger a break into a pair of Gann angles at $62.31 to $61.15. Since the main trend is up, buyers could come in on a test of this area.
If $61.15 fails as support then the selling is likely to extend into the next major uptrending support angle 60.80 and the major 50% level at $59.73.
Conclusion
Watching the price action the past two weeks, it has become clear that $63.48 has to hold as support or prices will collapse into support. This will not change the trend, however, but it will indicate that buyers are looking for value.
Fundamental and technical analyst with 30 years experience. More