No doubt about it, spring 2019 in the Northern Hemisphere has been rough on energy bulls. Both Brent and WTI crude oil have consistently fallen amid heavy selling pressure. For the month of May, the losses were extreme, measuring more than 20%. No matter the fundamentals of the day ― be it conflict in the Middle East or seasonality ― prices dropped.

However, the first full trading week of June brought some relief to anyone long WTI crude. Values closed near flat after making a bearish run at the key $50.00 psyche level. At this point, one has to wonder if the tides are beginning to turn for global oil.

Fundamental Outlook

After a period of mixed inventories reports and trade war panic, the fundamental picture for global oil is clearing a bit. Here is what we know:

  • Production: Inventories are up, fueled mainly by a spike in North American production. U.S. wells are currently taking 12.4 million barrels of crude out of the ground every day, a historic high.
  • Inventories: Last week’s crude oil stocks reports suggested that oil supplies are growing, despite the peak demand season getting underway.
  • Low Prices Are Being Felt: Last week, Saudi Arabia reassured the markets that OPEC was committed to cutting output and drawing down supplies. In addition, the Baker-Hughes Rig Count showed a drop in North American drill rigs. Both of these issues stem directly from low oil pricing.

The bottom line is this: inventories are due to decrease, peak demand season is upon us, and there is no end in sight for the U.S./China/Mexico trade standoff. All in all, oil is in a fundamental position to rally in the near-term.

July WTI Crude Oil Futures Close The Week Above $54.00

In a Live Market Update from Friday, I talked about the importance of a key 38% Fibonacci retracement level in July WTI crude. This area proved to be hotly contested and was vigorously defended by sellers.

July WTI Crude Oil (CL), Daily Chart
July WTI Crude Oil (CL), Daily Chart

It is difficult to overstate the short-term importance of the 38% Current Wave Retracement ($54.08) to July WTI crude. This is a make-or-break technical area; it will either confirm or deny the current WTI bearish trend. If you are trading July WTI on Monday, be sure to make note of $54.08.

Bottom Line: From a practical standpoint, one can make the case for buying $54.00 and playing a summertime WTI run back to $60.00 or $65.00. This isn’t a bad idea, but will involve placing a stop somewhere below $50.00 — a potentially large risk.

A more affordable trade is to stick to the short side of July WTI until proven otherwise. Immediately following Sunday’s electronic open, selling anywhere above $54.00 provides a pretty good entry to the short. With an initial stop above Friday’s high at $54.38, this trade has solid potential. It is likely that WTI will test the waters beneath $54.00 sometime on Sunday/Monday; a sell above $54.00 should be good for 50-75 ticks profit depending on the exact entry.

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