Crude Oil Technical Analysis

The oil market is seeing its most extreme levels of volatility in recent memory and continues to trade within range of 12-year lows. Yet, the Organization of Petroleum Exporting Countries (OPEC), is doing nothing to boost prices.

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Last Week’s Impressive Rally, But What Now?

• "WTI Crude oil has been unable to hold gains so far at the start of the week. Last week’s impressive Thursday-Friday rally had the price of Crude Oil printing a 2-week high on the back of the biggest two-day move higher since the move from the low in late 2008. Crude Oil’s March contract jumped 18% on Thursday and Friday and opened the week with a bullish tone, but has since dropped back toward $30 per barrel on an overall sour risk-tone. Both US Equities closed last week with a gain, which was the first time in four weeks as an unusual correlation between equity and US Oil have emerged."
• "The Fundamental Story: OPEC, NON-OPEC MUST TACKLE OIL SURPLUS TOGETHER: EL-BADRI
  ALL MAJOR OIL PRODUCERS MUST `SIT DOWN' TO SOLVE GLUT: EL-BADRI"

Key Levels

• "The current corrective zone, where price may be simply coiling up for another move down, is taken from the 38.2-61.8% Fibonacci retracement levels of the 2016 range. This zone marks the $31.75-$34.25 as a high-alert zone for a resumption of the large downtrend. Should the price break above $34.25; attention will then turn to the YTD high of $38.11 before getting overly bearish."

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The daily price is located below 100-day SMA (100 SMA) and below 200-day SMA on the primary bearish area of the chart. Price is ranging within the following support/resistance levels:

• 38.93 resistance level located near 100 SMA on the border between the primary bearish and ranging bullish condition, and
• 27.06 support level located below 100 SMA/200 SMA in the primary bearish area of the chart.

RSI indicator is estimating the ranging market condition to be continuing.

• If the price will break 38.93 resistance level so the bullish reversal will be started.
• if price will break 27.06 support so the primary bearish market condition will be continuing.
• if not so the price will be ranging within the levels.

Resistance	Support
38.93	27.06
54.00	N/A

The Medium-Term Strategy: bearish ranging within 38.93/27.06 area.

The Long-Term Strategy: watch close price to break 38.93 resistance level for possible buy trade.

Daily price is on primary bearish market condition with the local uptrend as the secondary bear market rally: the price is breaking Senkou Span line (which is the virtual border between the ranging bearish and the primary bullish trend on the daily chart) for the bullish reversal to be started. The symmetric triangle pattern was crossed to above for the possible breakout, and Absolute Strength indicator is estimating the ranging condition to be continuing.

Resistance	Support
36.94	32.33
38.93	29.22

• if weekly price breaks 36.94 resistance so the reversal of the daily price movement from the primary bearish to the primary bullish market condition will be started;
• if weekly price breaks 32.33 support level so the primary bearish will be continuing without ranging up to the new 'bottom' to be forming;
• if not so the price will be moved inside Ichimoku cloud within the level.

2016-03-02 15:30 GMT | [USD - Crude Oil Inventories]

• past data is 3.5M
• forecast data is 3.4M
• actual data is 10.4M according to the latest press release

[USD - Crude Oil Inventories] = Change in the number of barrels of crude oil held in inventory by commercial firms during the past week.

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"U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 10.4 million barrels from the previous week. At 518.0 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories decreased by 1.5 million barrels last week, but are well above the upper limit of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories increased by 2.9 million barrels last week and are above the upper limit of the average range for this time of year. Propane/propylene inventories fell 3.7 million barrels last week but are well above the upper limit of the average range. Total commercial petroleum inventories increased by 9.9 million barrels last week."
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Crude Oil M5 price movement by U.S. commercial crude oil inventories news event:

The price of Crude Oil has moved to its best levels since January on its strongest weekly gain since May. Other commodities like Gold are joining therace, which entered into a bull-market with today’s push higher. The turn-around in data points in the United States it naturally turning attention toward the idea that demand may soon start to eat away at the oversupply in the Oil market that could help balance the pressures of oversupply.

The Dollar Story & Its Effect in Oil

Traders wondering if Oil prices have bottomed or not will have to wait and see for confirmation, but two things that should
not be underestimated is the effect of the US Dollar on Oil prices and the power of short-sellers exiting their trade in unison to push up a market. Case in point, Chesapeake Energy, one of the most concentrated shortpositions in the market is up 85% this week as short-sellers are seeing limited upside (which means downside for shorts) for now.

We are getting awfully close to the 2016 opening price high of WTI Crude Oil at $38.36. A break above there could turn to a similar slingshot move like we saw in the Canadian Dollar against the US Dollar. For now, the most important price support appears to be the $30.00/50 zone that provided the late February low. A hold above there will keep attention on the Opening Range high of $38.36. However, this will likely only be possible on further risk appetite that would be seen in higher stocks, and a weaker US Dollar. Above the opening range high of 2016, traders will next look to the psychologically important $40, which would be a 50%+ move off the current low of $26.03.
Contrarian System Warns of Further Price Support

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The price of WTI Crude Oil has moved close to the opening range high of 2016 at $38.36. Looking at the global counterpart to WTI Crude Oil of ICE Brent Crude, it is up ~10% on the year after hitting 12+ year lows in early February. Now, on the back of weakening US Dollar, the metals, and energy markets are overwhelmingly in the positive for the year with Gold up nearly 20%.

Amazingly, the move higher in US Oil from 26.03 on February 11 is now within a whisper of the January 4 Opening Range high of $38.36 in less than a month’s worth of trading days. However, as you can see on the chart, this move may be the toughest yet for the Bullsto push through. Another component of the recent rally that many in the mainstreamare likely not aware of is the positioning change that is aligning with equities. Recently, there has been a new wave of speculative longs come into the market that has recently been absent that could extend this move higher still. The commitment of traders reports recently showed bullish positioning in ICE Brent Crude as the dominant new position being taken.

WTI Crude Oil Bull Rushes Into the 2016 Opening Range High of $38.36/bbl



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This week will see how the price of crude oil reacts to the 200-day moving average. The 200-day moving averages long known as the most reliable form of technical analysis to its simplicity and effectiveness. In short, if the current price is above the 200-day moving average (average price of roughly a year’s worth of price data) bullish bets should be favored. On the opposite end, price below the 200-day moving average tends to encourage an outright parish bias with a conviction to sell rallies as they are seen as temporary and less sustainable as dictated by the average price.

After a 60.5% rally off the February 11 low, which has been aided in no small part to the weakness of the US dollar and the uncertainty surrounding Federal Reserve action to hike interest rates more than once this year, Oil’s true technical test has arrived. As you can see on the chart below, the price of oil has failed to times the last year at the 200-day moving average in both June and October within a few cents of the price and the moving average.

Now, a break higher beyond the 200-day moving average will uniformly change the tone of risk and energy and affected markets such as emerging markets that are heavily commodity dependent. Since falling below the 200-dma back in July 2014, oil has been in an outright bear trend. As you can imagine, many analysts and traders are expecting the optimism to fail at this key resistance once again.


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A sustainable uptrend is proven by how it recovers from corrective moves. WTI Crude Oil is seeing its first key retracement as we’ve moved from a high of ~$42/bbl down to $37.55/bbl as of Thursday morning for a 10+% drop. In addition to the ~10% drop has been the first approach of the ~$37/bbl area as support for the first time since August. All other times between then and now, that level has acted as rather firm resistance.

As we currently stand, the US Dollar is set to end Q1 marking its worst performance in a quarter since 2010. The poor performance was cemented on the back of a Janet Yellen speech to the Economic Club of New York where she mentioned US Oil and the need for gradual hikes when they come from the Federal Reserve. Now, it appears as though the Federal Reserve (or, at least, their chief) is looking at Oil as a systemic risk, the way they were looking at banks. If that’s the case, we could see a shift to a weak US Dollar focuses, which not only continues to help equities, but also energy.

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• Crude holds key support symmetry
• Timing relationship next week should prove critical

Crude Oil - Medium-term Forces vs. Long-term Forces

I have been touching upon a similar theme in most of my writings over the past couple of weeks. We are at a point in the markets where some pretty strong medium-term term trends have developed against opposing longer-term trends (copper, USD, stocks to name a few). Are we going to see the longer-term trends reassert themselves or are these medium-term counter-term trends going to continue further to test some much deeper retracement levels in 2Q16?

As markets often do, they are making figuring this out as complicated as possible. Crude is an instrument that clearly fits this bill as the commodity advanced more than 60% off the early February low before stalling out about 20 cents shy of the 200-day moving average late last month. The 200-day moving average has been a remarkable level of resistance over the past year or so as every counter-trend recovery attempt has failed right around that widely followed resistance. Was the failure last month the long-term downtrend reasserting itself or was the recent turndown from there just a minor pause before another squeeze higher? I can’t say. The fact is that crude found support exactly where it needed to earlier this week as it tested the lower parallel a pitchfork structure drawn from the late January low and has headed directly higher since.

As such, this medium-term uptrend needs to be watched very closely next week. There is a pretty clear timing relationship towards the latter part of the week. A secondary low (against this week’s low) into this timeframe above the pitchfork parallel (currently around 36.50) would be pretty positive and open the door to another important push higher. A close over the 200-day moving average over the next few days would also be a pretty clear positive technical development and signal an important change in behavior. A failure on the other hand to hold above the support next week would argue that we have witnessed a secondary high against the 200-day moving average similar to how things played out in November. In this case look out below.

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