April West Texas Intermediate futures rebounded early this week after sellers failed to take out the previous week’s low. Last week, the market finished with enough downside momentum to indicate sentiment had shifted to the sellers, however, the lack of follow-through to the downside drew the attention of buyers who drove the market away from a key support zone on the weekly chart.
The market is trading inside last week’s range which suggests investor indecision and impending volatility. Last week, the market finished about 10% lower. This week, it is in a position to finish about 4% higher. This is further evidence that investors are getting mixed signals from the fundamentals. This may lead to several weeks of rangebound trading.
Helping the April futures contract this week has been a weaker U.S. Dollar and a stable stock market.
The dollar traded down to a three-year low despite favorable inflation news that supported several Fed rate hikes later this year. The weaker dollar drove up demand for dollar-denominated commodities like crude oil.
A strong recovery in the stock market after last week’s volatile sessions indicated increased demand for higher risk assets and investor confidence in the economy. This helped crude oil prices because it suggested that due to economic growth, demand would remain steady.
Early in the week, investors expressed doubts about the OPEC-led production cuts surviving the onslaught of rising U.S. production. This encouraged Saudi Arabia to voice support for output cuts backed by OPEC and other major producers including Russia in an effort to tighten the global supply and stabilize prices.
Later in the week, the market received additional support on the news that Saudi Arabia and Russia plan to draft an agreement on a long-term alliance by the end of the year according to the United Arab Emirates energy minister Suhail al-Mazroui.
Additional support was provided by a new report that said Asian demand is increasing. India imported a record 4.93 million bpd in January to feed its expanded refining capacity and to meet rising demand.
Perhaps putting a lid on a further rally this week was the U.S. Energy Information Administration’s weekly inventories report that showed U.S. crude inventories rose by 1.8 million barrels in the week to February 9, to 422.1 million barrels.
Gains may have been further limited by the EIA report from earlier in the month showing U.S. crude output had reached a record 10.27 million barrels per day, making it a bigger producer than Saudi Arabia.
Weekly April West Texas Intermediate Crude Oil Technical Analysis
(Click to enlarge)
The main trend is up according to the weekly swing chart. Although the April futures contract traded down as much as $8.49 from its recent top, the trend did not turn down. Short-term momentum may have shifted slightly to the downside, but it didn’t form a trend. All we saw was a 50% retracement of its range from the week-ending October 13 to the week-ending January 26. This is otherwise known as a “normal correction” in a bull market.
The main trend will resume on a sustained move through $66.39. A trade through $57.90 will indicate the selling is getting stronger.
The main range is $47.41 to $66.39. Its retracement zone at $56.90 to $54.66 is one potential downside target.
The intermediate range is $50.19 to $66.39. Its retracement zone at $58.29 to $56.38 provided support last week when crude oil reached $57.90.
The new short-term range is $66.39 to $57.90. Its retracement zone at $62.15 to $63.15 is the primary upside target.
If the trend is beginning to weaken then sellers are likely to stop any rally on a test of $62.15 to $63.15.
If the selling becomes decisively stronger than the buying at current price levels, then sellers will try to drive the market through last week’s low at $57.90 and the series of retracement levels at $56.90, $56.38 then eventually $54.66.
The rally is likely to strengthen if buyers can sustain a rally over $63.15.
If there is no strong bias then prices are likely to become range bound between $62.15 and $58.29. This could produce a choppy, two-sided trade for several weeks.
The traditional supply/demand fundamentals seem to be balanced, so the direction of the U.S. Dollar is likely to exert an even bigger influence on the price action over the near-term.