Last week was a big one for global oil, featuring a major market correction. Crude oil has bucked all seasonal pricing trends, posting a reversal in both the WTI and Brent crude markets. Prices have plunged ― aggressively. For the past five sessions, July WTI crude futures have fallen $4.07 per barrel, while August North Sea Brent fell $3.24 per barrel. To say the least, the energy bulls were crushed.

However, a furious $1.50 rally occurred in July WTI beginning at the halfway point of Friday’s session. The market ran north from an intraday low of $57.50 to close in the green at $59.02. Bargain hunters came out of the woodwork and traders took profits on short positions ahead of the Memorial Day holiday.

So, what is next for global oil? Was Friday the beginning of a more traditional rally ahead of the North American summer season? Well, anything is possible in the world of crude oil.

Mixed Fundamentals

As I have alluded to all week, the fundamental outlook for crude oil is a bit murky. On the one hand, we have growing supplies reported by the API and EIA. Conversely, Friday’s Baker-Hughes Rig Count came in at 797 rigs, down from 802 the previous week. This means a few things:

• Drillers are limiting new investment going into the summer
• Energy insiders are beginning to hedge against slowing global economic growth

Given the strong performance of the U.S. economy, oil should be priced higher ― but it isn’t. Factor in escalating tensions in the Middle East, and one can make the case that WTI crude is worth much more than $59.00 per barrel.

Going into the final week of May, two things will drive the crude oil markets: supply levels and news out of the Middle East. As of this writing, the U.S. is sending 1,500 troops to the region to address the “ongoing threat posed by Iranian forces.” This action follows a mid-May deployment of aircraft carriers stemming from incidents in the Gulf of Oman. Without a doubt, the U.S./Iran situation has the potential to send WTI and Brent crude directional by June 1.

July WTI Crude Oil Closes Friday On A Positive Note

Last week’s range in July WTI crude oil futures was extensive, posting a $6.63 run from high to low. The EIA report acted as the primary catalyst driving the action, as a surprise build in supply brought sellers to the market in droves.

Here are two levels to watch in July WTI going into Monday’s trade:

• Resistance(1): 38% Current Wave, $59.86
• Support(1): Swing Low, $57.33

Bottom Line: The read for WTI crude oil is fairly straightforward: the trend is down and key number is $60.00. As long as the Swing Low ($57.33) remains a viable short-term bottom, a short from Fibonacci resistance is solid entry to the bear.

Until elected, I will have sell orders queued up from $59.84. With an initial stop at $60.11, this trade produces 25 ticks on a slightly sub-1:1 risk vs reward management plan.

The coming week is very likely to be an active one in the global oil markets. Be sure to stay tuned for news and analysis facing the U.S./China trade war, tensions in Iran, and the weekly crude oil inventories cycle.