WTI has been kept below 97.0 (96.8 to be exact) for the past 2 weeks despite the strong rally from mid April brought about be Middle Eastern turmoil and apparent reduction in crude oil and related inventory stock. Since then, inventory data has been mixed at best, painting an incoherent picture of demand/supply of oil amidst a global economy slowdown backdrop. This should naturally lead to lower crude prices, however price managed to stay above 94.0 instead of selling down. The ability of price staying up is all the more amazing considering that oil production in US is expected to continue increasing, which will have a dampening impact of prices in the long run.
That leads us to current conundrum. Long-term fundamentals point to cheaper oil, while short-term fundamentals are mixed (due to week/week over and under expectation of inventory numbers from various reports). From a technical point of view, price appears to be topping due to the failure to break 97.0, with stochastic readings pointing lower as well. However, bears did not go for the jugular during the 2 latest test of 94.0. where price did dip lower, but bearish follow through on both occasions were found wanting. This suggest that underlying bulls may still be strong, especially since ‘true range’ since 6th May is much higher, staying above 95.0 while 94.0 – 95.0 are only populated with candle shadows. With that in mind, the case for price to test 94.0 swiftly once again becomes less convincing, and perhaps we could see price start to trade sideways between 94 – 97 while inventory numbers sort themselves out.
Short-term chart does not share the same ambiguity as Daily Chart though. Price has been mostly trading within the descending channel, with Channel Top currently exerting pressure on current price levels. Stochastic readings are also pointing lower after peaking just under the Overbought region. If the Channel relevance stay true, we could see yet another break of 94.0 as Channel bottom has breached the key support already. Should this happen, traders may wish to keep a keen eye to see if prices manage to sustain a bearish push for an extended period of time unlike previous attempts.
With the American Petroleum Institute and Department of Energy inventory reports coming in today and tomorrow respectively, there will certainly be great volatility to come. As mentioned above, recent data are losing relevance in regards to longer term demand/supply projection, but short-term knee jerk reactions are definitely possible. As such, traders need to watch out for ‘fakeouts’ in both directions and be wary of early signs of breakouts without confirmations.
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