What’s Driving WTI?

U.S. West Texas Intermediate crude oil futures posted a volatile two-sided trade this week before moving to within striking distance of its three-year high on Thursday. One catalyst behind the price action this week was the U.S. Dollar since it also posted a volatile two-sided trade.

Additional factors affecting the price action were the U.S. Energy Information Administration's (EIA) weekly inventories report and a survey on OPEC's commitment to its program to cut production.

At the start of the week, crude oil futures were pressured by a firmer U.S. Dollar which rose because of rising U.S. Treasury yields. Dollar-denominated crude oil retreated because a stronger dollar tends to reduce demand for oil priced in dollars.

Prices reached their low for the week on Wednesday despite the EIA report that showed U.S. crude inventories rose by 6.8 million barrels during the week-ending January 26, after 10 straight weeks of declines. Analysts had expected a decrease of 126,000 barrels.

The EIA report went on to say that gasoline stocks unexpectedly fell by 2 million barrels, compared with expectations for a gain of 1.8 million barrels, helping to drive up gasoline futures.

Additionally, the EIA report went on to say that distillate stockpiles fell by 1.9 million barrels, versus expectations for a 1.5 million-barrel drop, the EIA data showed.

The major news revealed in the EIA report was that U.S. crude oil production in November surpassed 10 million barrels per day for the first time since 1970, and neared the all-time output record. However, this news wasn't enough to deter buyers because a Reuters survey showed that adherence to the program to limit production rose to 138 percent from 137 percent in December, suggesting commitment is not wavering even as oil prices hit their highest level since 2014.

Traders also said that a drop in Venezuelan oil output also underpinned prices since its grade of oil is in high demand by U.S. refiners.

This week's price action strongly indicates that the crude oil market is still in the hands of major buyers. The fundamentals are also bullish which lessens the chances of a major sell-off.

This week's news also tells us that the market is likely to push higher until prices reach a level that encourages members of the OPEC-led group to begin cheating. So keep an eye on Russia since it'll probably be the first country to raise issues.

March West Texas Intermediate Crude Oil Technical Analysis

(Click to enlarge)

The main trend is up according to the weekly swing chart. As of Thursday's close, the market is trading inside the previous week's range. This suggests investor indecision and impending volatility although trading near the high of the weekly range is giving the market a slight upside bias.

A trade through $66.66 will signal a resumption of the uptrend.

A move through last week's low at $63.05 will make $66.66 a new minor top. This will be the first minor top formed since the week-ending December 8.

The March futures contract range is $89.81 to $38.40. The market is currently trading inside its 50% to 61.8% range. This range is controlling the longer-term direction of the market.

For four weeks, the market has been straddling the 50% level at $64.11. The price action this week strongly indicates that this price is the major support.

The short-term range is $50.07 to $66.66. Its retracement zone is $58.37 to $56.41. If the market were to collapse from current price levels then this would be the primary downside target. This is a value zone so buyers are likely to come in on a test of this area.

March West Texas Intermediate Crude Oil Weekly Forecast

Based on Thursday's close at $65.98, the direction of the market into Friday's close and next week will be determined by trader reaction to the uptrending angle at $66.07.

A close over this angle on Friday will put the market in a bullish position. This could generate the upside momentum needed to challenge the high at $66.66.

Next week, the angle moves up to $67.07. The buying will have to be strong enough to overcome this angle in order to maintain the bullish tone.

If upside momentum continues to increase then the Fibonacci level at $70.17 will become a reasonable target.

The inability to overcome $66.07 this week and $67.07 next week will signal the presence of sellers. If the move generates enough downside momentum then we could see a pullback into $64.11.

The most important level on the charts is $64.11. A failure to hold this level could trigger an acceleration to the downside.

As you can see on the weekly chart, there is plenty of room to the downside if $64.11 fails as support. As we said before, if there is a major sell-off then we could see a collapse to at least $58.37.

Basically, look for the strong upside bias to continue next week if buyers can overcome $67.07. Look for weakness to develop if $64.11 fails as support.