Thank you for reading this week’s CL Analysis.
Choppy, Narrow, Sluggish…you pick the adjective and the CL market has been all of that…and then some. Check out the range the daily chart has been in for 84 days.
There are several key reasons for this narrow range. But, essentially, you can break the reasoning down into 2 categories:
1.) The cut in production from the OPEC nations has begun to be felt in the amount of supply available to the market. Thus raising prices.
2.) The increase in prices for oil enticed the U.S. shale producers back into the market. On Friday the Baker Hughes announced that rigs drilling in the U.S. rose by 5. Compared to the same period last year, there are 202 more rigs in production. Additionally, the U.S. crude production of 9 million bpd last week was the highest level since April 2016. Thus pushing price lower.
The real question as to whether or not prices will stay range bound will be if the OPEC nations can tolerate a clear increase in U.S. production. OPEC will meet again in May, where they will discuss whether to extend production cuts further. In the meantime, we can expect to see more choppy, narrow trading ranges.
CL Analysis – The Charts
Crude continues to consolidate in a wider retracement pattern. The 78.6% Fib retracement has held price in check since December 2016.
The theme continues on this daily chart. This symmetrical triangle formation is also considered a “coiling” formation and is the proverbial calm before the storm (breakout). We will be continuing to watch this pattern develop as to whether the break will be a continuation pattern or a reversal pattern.
One thing that is certain on most trading weeks, regardless if it is chop or trend, is the direction of CL is set early in the week. The high or low of the week is made on a Monday or Tuesday. This week was a holiday week, but nonetheless, the high for the week was made on Tuesday (see chart below). The reason this is an important consideration is because you can get a “predictive” gauge on which direction the market is “leaning” and adjust your trading accordingly.
Summary – CL Analysis
The bottom line here is that this market will continue to drift in a sideways pattern until either the decrease in supply from the OPEC cuts drives price higher or the increase in U.S. production is offset by higher demand. Until then…look for more of the same.
Above the Market
54.50 – 55.00
55.50 – 55.80
56.15 – 56.45
Below the Market
53.35 – 53.00
52.40 – 52.10
51.45 – 51.15
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The Oil Trading Group. (“OTG”) does not hold itself out as a Commodity Trading Advisor (“CTA”).Given this representation all information and material provided by OTG is for educational purposes only and should not be considered specific investment advice.
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