There wasn’t much movement in July Crude Oil this past week. The market basically retraced about 75% of the previous week’s range before selling off early in the session on Thursday.
The market is still trading inside of a major triangle chart pattern and could remain inside this triangle for several more weeks. The support and resistance lines of the triangle chart pattern extend well beyond July, suggesting a possible range bound trade until the end of the year.
Currently, the triangle resistance is at $97.26. This is followed by a series of three lower-tops at $97.38, $98.22 and $99.77. On the downside, the triangle support line is at $86.90 this week, followed by the April 18 bottom at $86.16.
The short-term range is $86.16 to $97.38. This range has created a key retracement zone at $91.77 to $90.45. Late in the week, the market tested the 50% level at $91.77. The move drew the attention of profit-takers and bottom-pickers, triggering an intraday short-covering rally.
If the market can build a support base over $91.77 then it may generate enough buying interest to mount a challenge of the series of resistance points. A failure to hold $91.77, however, means an eventual test of the Fibonacci level at $90.45.
Concerns that the Fed was considering tapering its aggressive bond-purchases at its next several meetings, helped drive up the U.S. Dollar recently, making dollar-priced crude oil more expensive to foreigners and thus, curtailing demand. This also helped the inventory to build.
On May 30, however, weaker-than-expected U.S. GDP helped drive down the dollar and consequently July crude oil. If the U.S. Dollar continues to break, then look for crude oil to push higher. Although fundamentally, crude oil should be under pressure because of high inventory, speculation that the demand picture will change favorably could draw the attention of aggressive buyers.
The uncertainty created by the Fed is helping to hold crude oil prices in a range. Traders are at a loss as to how to approach the market which is probably the primary reason why it is in a trading range. Economic reports added to the confusion. For example, if the economy begins to show signs of strength then traditionally, crude oil should rally because it is likely to lead to stronger demand.
The problem with strong economic reports is that they also bring the Fed closer to ending its stimulus program which in turn will drive up interest rates and the U.S. Dollar. A stronger dollar typically puts pressure on crude oil and other commodities.
Until the Fed clarifies its position regarding the stimulus program, crude oil could remain range bound. Barring an extraordinary global economic event that affects crude oil supply, it looks like another week of sideways trading.