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Jim Hyerczyk

Jim Hyerczyk

Fundamental and technical analyst with 30 years experience.

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Bearish Factors Are Piling Up For Crude

Bearish Factors Are Piling Up For Crude

May West Texas Intermediate crude oil futures are in a position to finish lower for a second week. The fundamentals are bearish and the weekly technical chart pattern indicates that a key, long-term uptrending Gann angle has been breached. It seems like it’s just a matter of time before the market begins to accelerate to the downside.

The bearish factors are started to pile up and selling pressure is beginning to mount, which could force the hedge funds to start liquidating their massive long positions. Helping to weigh on prices are a stronger U.S. Dollar, signs of an inventory build at the U.S. futures delivery hub in Cushing, Oklahoma, surging U.S. crude production and investor concerns over a potential trade war.

The U.S. Dollar

The dollar is rebounding at the end of the week after a short-term break. This is helping to pressure foreign demand for crude oil. A weaker Euro and expectations for as many as four interest rates hikes this year are helping to underpin the Greenback.

The EIA Report

According to the U.S. Energy Information Administration, U.S. crude inventories rose by 2.4 million barrels in the week-ended March 2, compared with analysts’ expectations for an increase of 2.7 million barrels.

Crude stocks at the Cushing, Oklahoma, delivery hub fell by 605,000 barrels, the EIA said, the 11th straight week of declines.

Weekly data from the U.S. Department of Energy also showed weekly U.S. crude production hit a record high last week of almost 10.4 million barrels per day (bpd).

Earlier in the week, the EIA said it expects U.S. crude output in the fourth quarter of 2018 to reach an average of 11.17 million bpd, up from the previous forecast a month ago of 11.04 million bpd.

Cushing, Oklahoma Build

Market intelligence from Genscape is showing inventories at the Cushing, Oklahoma storage hub rose by more than 290,000 barrels in the week to March 6, traders who saw the data said.

Stockpiles in Cushing have more than halved since November and this increase, if confirmed by official data, would be the first build in 12 weeks.

Tariff Concerns

On Thursday, President Trump signed an order to begin applying a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum. This news is sparking fears that other countries may retaliate. Traders said that a trade war could weaken the economy which would slow down demand for crude oil.

Weekly Technical Analysis

(Click to enlarge)

The main trend is up according to the daily swing chart, however, momentum has been trending sideways to lower since the week-ending January 26.

A trade though $66.02 will reaffirm the uptrend. A move through $57.60 will indicate the selling is getting stronger. The main trend will actually turn down on a move through $55.90.

The short-term range is $66.02 to $57.60. Its 50% level or pivot is $61.81. The market has straddled this level four out of the last five weeks. It is controlling the momentum and the tone of the market.

The main range is $47.50 to $66.02. Its retracement zone at $56.76 to $54.57 is the primary downside target.

Weekly Technical Forecast

Based on Thursday’s close at $60.06 and the early price action on Friday, the direction of the May WTI crude oil market next week is likely to be determined by trader reaction to an uptrending Gann angle at $62.50.

A sustained move over $62.50 will signal the presence of buyers. If this creates enough upside momentum, we could see a retest of $66.02.

A sustained move under $62.50 will indicate the presence of sellers. This move could trigger an acceleration to the downside with the first target $57.60.

If $57.60 fails as support then look for the selling to extend into the 50% level at $56.75. We could see a technical bounce on the first test of this level since the trend is up. If it fails then look for the selling to extend into the main bottom at $55.90.

Taking out $55.90 will change the main trend to down. This could fuel a spike into a long-term uptrending angle at 55.00, followed closely by the Fibonacci level at $54.57.

We’re looking for the downside bias to continue this week, fueled by hedge fund liquidation due to a plethora of weak fundamental data and a change in momentum on the weekly chart. A stronger U.S. Dollar is likely to be the primary driver of the price action.

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