Crude Oil Technical Analysis

Since last Tuesday, when data from the CFTC is collected, the price of crude oil has rebounded 8%. There remains a lot of confusion as to the future direction of crude oil given that the historical “boom/bust” cycle is being questioned due to the large increase in global supply from the hands of shell producers.

Despite the concerns that Hurricane Harvey would leave the gasoline market as many refineries were flooded and temporarily put offline, there was little to no concern that there be a shortage of oil. Recent inventory data showed there is no shortage of crude, just difficulty in the delivery of refined products.

Either way, the price of crude oil has significant resistance points ahead when looking at the chart below.
Based on internal price action, I was keeping an eye on $48.15 per barrel, which was a terminating price of the triangle before the recent breakdown below $46 a barrel. As of last Thursday, we saw a sharp spike that led to the 8% rally with spoke about earlier as price cleared the internal resistance of $48.15 to trade as high as $49.39 on Wednesday.

There is a confluence of resistance levels to watch between $49.67, which is the 200-day moving average, and the late July high of $50.20 per barrel. Between these two levels, there remains trendline resistance and Fibonacci levels that could resist a further price increase. One component that is helping the price of oil to remain supported is the weak US dollar.

While keeping an eye on the multiple levels of resistance, a break and close below $45.38 would resume the 2017 downtrend, which is yet to be invalidated as we consistently see lower lows and lower highs throughout the 2017.

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The key level to watch here is the red upward sloping trend line. So long as prices remain above this trend line, then we can maintain a bullish bias. The red trend line runs near $48 today. If crude oil prices move below this red trend line, then it acts like a red warning signal on the dashboard. There are still bullish patterns available like a diagonal. However, the odds of other bearish patterns increases diluting the opportunity at a good risk to reward ratio. Bottom line, a break of the red trend line opens the door for a retest of the August 30 low at $45.57.

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The price of WTI Crude Oil has mounted a strong recovery after testing the polarity point on the chart between $49/51 per barrel. A polarity point is where prior resistance may act as future support. Oil traders should look to see if the price can continue to find support near the $50/bbl figure. Since summer, the dominant trend bias favors price appreciation.

From current pricing, a hold of a daily close above the $50.18 figure (Oct. 12 low) opens the door for a challenge of $52.83-53.94/bbl (September high, 100% Fib extension). Alternatively, a reversal and close back below $50.18 exposes $49.13 (October low, trend line pivot).

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The Kingdom of Saudi Arabia (KSA) wants oil prices to head back to $100. And there are a couple of ways of achieving this ambitious goal.

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The price of Crude Oil is off the highest prices of the month as investors digest a recent EIA report showing the first build in crude and crude products in two months and as they await clarity on OPEC+ (a moniker for OPEC and strategic alliances like Russia.) Traders should note the finish to the year has been kind to Crude recently, and the charts are suggesting we could see a similar rally, but traders may have to put up with the volatility that proves directionless until the Nov. 30 meeting of OPEC and allies has passed.

From a broader perspective, the recent 28-month high in crude oil last week, which was boosted by geopolitical tensions in the Middle East between Saudi Arabia that have led to a presence in Lebanon as warnings by the Saudi Royal court against Iran have escalated. Another key piece of industry news that provided price volatility, but may prove directionless in the end, is that Norway’s global leading sovereign wealth fund with $1 trillion in assets has proposed shedding their energy-intensive oil and gas stock portfolio. Their energy exposure is worth by nearly $35 billion, and this move would be to reduce concentration risk should an adverse energy price shock happen again. Another concern over the week came when the IEA reduced their demand forecast and said that $60

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Crude oil: In recent weeks large speculators have been buying oil contracts at an extremely aggressive pace, bringing the net-long position to a new record last week of 596k contracts from 417k in the middle of last month. A modest reduction was seen in the most recent report, with the net-long declining by over 19k to 577k contracts.

The sheer size of the position is reason for concern for oil bulls, and the sharp run-up in a relatively short period of time makes price vulnerable to a pullback. It would be a healthy development, if crude is to continue higher, that we see a reduction in the position without too much technical damage done in the process. But for now, risk of a reversal and/or period of volatile trade at this time is elevated as positioning has reached an unstable level. This should favor the short-term trader looking for two-way price action to take advantage of.

A big-picture chart we’ve been looking at for the past couple of months. Oil may be on its way to running out of a long-term bottoming ‘head-and-shoulders’, but has the 1998 trend-line to contend with (just as it did when positioning was at a previous record high in February). Market positioning brings pause to the macro bullish implications of the ‘neckline’ breakout last month.

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Crude oil prices have quietly rallied while the Bitcoin moves steal the headlines. It appears as though a minor degree triangle pattern has ended as crude oil now presses recent highs. If our Elliott Wave count is correct, this move higher is a terminal wave that once it exhausts, could be retraced early in the new year.


It appears crude oil prices are thrusting higher out of a triangle pattern in a fifth wave of an impulse wave. Using wave 5 measuring techniques one wave relationship shows up near $60.60 per barrel. Look for this wave 5 to subdivide in motive fashion (either as an impulse or as a diagonal). We can also anticipate divergence appearing on an oscillator like Relative Strength Index, which is typical in a fifth wave.

We feel confident in the wave 4 triangle interpretation because in an impulse, wave 4 tends to alternate with wave 2 in the type of wave. Wave 2 was a zigzag wave and wave 4 is a triangle, which fits that guideline of alternation.

Bottom line, we are in a terminal or ending wave of the 4 months advance. Crude oil price may find a terminal point near $60.60 though it does not have to.

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In a world where crypto currency momentum seems to defy physics, Crude Oil’s bid does not appear to be purely speculative fervor. Instead, there has been a steady drop in U.S. crude stockpiles backed by refiner demand. The drop in stockpiles has lead to backwardation where front month futures contracts are receiving a premium over later dated future contracts. In a commodity market, backwardation is a way of using the financial market’s collective intelligence to signal market tightening, which is backed by OPEC’s production cuts and steady global demand.

The December 2018 Brent Crude Oil futures contract is currently at a $3.63/bbl premium to the December 2019 contact. The demand is aligning with price support. The irony of the current state of the Oil market is that things are looking too good to some. Iran's Oil Minister, Bijan Namda Zanganeh recently said, "Members of [OPEC] are not keen on increased Brent crude prices above $60/bbl because of shale oil." Prices of Brent Oil's front month contract reached an intraday high of $69.37 on Wednesday.

The message behind the weekly inventory report out of the United States was that the overall petrol glut is continuing to shrink, and has done so for the eighth straight week. The US Crude Inventory drop registered at 4.95m barrels per the EIA. Of course, traders are often looking for the next item to round the corner, and that is looking to individual crude products that refiners have been so aggressively turning into usable products, which are not being sold downstream as fast as an oil bull would hope.

Either way, trader should think twice or more about fighting the strength seen in Crude Oil. Wednesday saw Crude trade above $64 with Brent within an whisper of $70 and backwardation explained above continues to support the backdrop.

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We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests Oil - US Crude prices may continue to rise. Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed Oil - US Crude trading bias.

Traders are defined by their lack of patience in realizing a profit, which could make the historically long intuitional position in Brent an argument for more downside.

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Crude Oil Inventory Data Shows Rising Output and Inventories

Recently, data from the EIA showed a rise in US stockpiles after excessive declines through H2 2017. Typically, a rise in stockpiles wouldn’t offer too much concern except that US production rose to a record high. Earlier this week, the EIA Drilling Productivity Report highlighted US shale production as likely to increase further in April to a record high 6.95mm bpd. This data will act as a cloud preventing further bullishness from taking over unless demand picks up mightily.

Another way of seeing this fear of supply pressures is through futures spreads, which help show if traders and hedgers in the physical market see Contango where the front dated contract trades at a premium or backwardation where the front-month contract trades at a premium and often supports a broader bullish view.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Oil - US Crude prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Oil - US Crude-bearish contrarian trading bias.

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