June crude oil is set to close lower for the week after heavy selling pressure hit the market following a test of a major 50% price level at $94.66. The actual high for the week is $94.69. This 50% level has been mentioned for weeks since the main range was formed between $107.86 and $81.46. It is important because it represents the pivot price between bullish and bearish.
Currently, the pivot price is acting like resistance which means the market is trading on the bearish side. Investors will continue to sell rallies into this pivot as long as it holds as resistance. If speculators can sustain a rally above this pivot then look for a breakout into a downtrending trend line at $97.41. A move through the uptrend line at $92.32 will be a sign of weakness and could trigger a break into $90.30.
Because of the lower-top, lower-bottom formation, the main trend is down. This means that the current rally is a counter-trend move. Since the main trend is down, professional traders are likely to continue to sell rallies. The swing chart suggests that a breakout over $98.06 will turn the main trend to up while a breakdown under $85.90 will reaffirm the downtrend.
Fundamentally, the market remains weak because of signs of sluggish growth in the U.S. and China. A slowdown in the economies of the world’s top two consumers is likely to mean a drop in demand and a rise in inventory. The fact that U.S. crude oil stocks are at their highest level since 1981 should keep a lid on any substantial rallies.
Earlier this week, the Energy Information Administration reported that U.S. implied demand for gasoline fell 3.8% last week to its lowest level at the end of April start of the peak driving season in 10 years. Also reported was the news that inventory levels are now sufficient enough to cover 25.7 days of current weak demand. This is the highest level of cover in end of April since 1999.
June crude oil fell on the news and may continue to do so next week if demand continues fall and the market remains on the bearish side of the pivot price at $94.66.