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Jim Hyerczyk

Jim Hyerczyk

Fundamental and technical analyst with 30 years experience.

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Saudi And US Production Up As Market Volatility Continues

Crude Oil Outlook

April Crude Oil futures failed to follow-through to the upside this week and are likely to finish the week lower. Although the market briefly penetrated last week’s high, it remained inside the range formed the week-ending February 6. Consecutive inside moves on the weekly chart typically indicates impending volatility. This assessment makes $55.05 the potential breakout level to the upside and $47.47 the potential breakdown level. Remaining inside this range will indicate trader indecision.

Crude oil is currently being controlled by two factors, the fund traders and supply. Aggressive hedge and commodity funds are looking for any excuse to trigger a breakout to the upside, but the bearish supply fundamentals continue to prevent this move from taking place.

The fund traders probably want out of their short-positions because they see the upside potential of a solid short-covering rally. It is difficult to assess the downside potential of the market because the target numbers being tossed around at this time like $25.00 or $10.00 crude oil don’t seem to be realistic. They may be more comfortable with the “known” rather than the “unknown”.

Looking at the daily chart, the “known” objective is the 50% level at $61.06. Although the market recently stopped breaking at $44.37, the next potential support level is basically “unknown” since traders aren’t sure if it will come in pennies or multiple dollars below this level.

Although crude inventories continue to build week after week, short-sellers still aren’t sure when the reduction in producing rigs will eventually curtail this. The weekly Energy Information Administration report was bearish because the amount of crude in storage continues to grow. At this time, traders know the drop in rig counts will eventually have an impact on supply but they don’t know when this will occur.

The current trading pattern shows that the market has been dropping immediately after the oil inventories report then strengthening after the U.S. rig-count numbers are released on Friday. There is no reason to suspect this chart pattern will change despite the release of the bearish inventory report. 

The chart pattern on the daily chart suggests that traders are still responding to support. If this holds true this week then buyers are likely to come in to support the market on a retracement…




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