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The Big Picture For WTI Crude Oil

For the first time in 2019, WTI crude oil has posted back-to-back losing weeks. Since a late-April probe above $66.50, sellers have consistently driven prices lower. At this point, the $75.50 highs of last October appear to be somewhat unrealistic. So, is WTI crude oil putting in a top for the year? Let’s dig into the key fundamentals and technicals and find out.

The Global Oil Fundamentals Are Mixed

The current fundamentals facing the crude oil are mixed and rather confusing. On one hand, conflict in Venezuela and dismal global economic growth projections threaten to stymie the year-long rally. Conversely, seasonal buying pressures and surprising Q1 U.S. economic performance are factors that may send oil higher. All in all, the fundamental picture is muddy at best.

In times of uncertainty, it is often a worthwhile exercise to recap what we do know. Here is a quick summary of certain fundamentals:

  • Supplies Are Growing: The inventory cycles of the past two weeks have shown substantial builds in supply. It appears as though production is in full swing.
  • Peak Demand Season Is Approaching: From May 31 to July 4, the North American summer travel season will be at its apex. This period represents peak demand and typically features bullish fuel and oil pricing.
  • Production Is Online: Friday’s Baker-Hughes Rig Count came in at 807 rigs, up from 805 one week earlier. The trend has been up in this department, indicating that North American drillers are going full-bore after a long winter season.
  • Rollover Is Coming: Volume dilution due to rollover from the June WTI to July WTI futures contract will begin sometime around the 17th of May. The June/July rollover will be a big deal, as July is trading with about an $0.11 premium over June. While it doesn’t seem like much, the fact that July WTI is priced higher than June ignores the principle of backwardation. Essentially, July, August, and September WTI are currently worth more than June ―  a strong indication that oil prices are expected to rise in the near-term.

Add it all up ― the recent downturn isn’t likely to last. As soon as aggregate demand catches up with short-term supply, WTI is poised to stabilize in the $65.00-$70.00 area.

June WTI Crude Oil: Weekly Technicals

Every now and then, it is a good idea to take a step back and examine the big picture facing a market. For June WTI crude oil futures, the weekly chart is a great tool for looking at the macro-technical situation.

June WTI Crude Oil Futures (CL), Weekly Chart
June WTI Crude Oil Futures (CL), Weekly Chart

Here are the levels to watch for the coming week of action:

  • Resistance(1): 62% Macro Retracement, $63.48
  • Resistance(2): 78% Macro Retracement, $68.64
  • Support(1): Bollinger MP, $59.55
  • Support(2): Weekly SMA, $53.35

Overview: As of the first trading week of May, WTI has regained more than 50% of losses from the selloff of late-2018. However, the 62% Macro Retracement ($63.48) has proven valid as both resistance and a 2-way catalyst for participation. This level will likely play a key role in WTI until rollover later this month.

At this point, support is set up around the $60.00 psyche level, in the form of the weekly Bollinger MP. It will come as no surprise if price tests the waters below $60.00 before posting a late-spring/early summer bull run.

For now, I maintain a bullish bias toward WTI crude. Although the past ten sessions have been negative for pricing, seasonality and rollover are likely to bump this market north in the coming weeks. Unless June WTI trades below $59.50 or $59.00 for multiple sessions, the long side of WTI is preferable over the intermediate-term.

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Shain Vernier
US Analyst
Shain Vernier has spent over 7 years in the market as a professional futures, options and forex trader. He holds a B.Sc. in Business Finance from the University of Montana. Shain's career includes stretches with several proprietary trading firms in addition to actively managing his own accounts. Before joining FX Leaders, he worked as a market analyst and financial writer.
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