WTI crude oil

Trade Wars Bringing Heavy Action To WTI

Posted Friday, August 2, 2019 by
Shain Vernier • 2 min read

Well, they don’t call WTI crude oil “the wild west” of finance for nothing. On the heels of Wednesday’s FOMC meeting, the past 24 hours (as of 10:15 AM EST) have brought heavy action and a plunge of more than $1.75 per barrel to September WTI. The primary market drivers have been more headlines from the ongoing U.S./China trade wars.

As far as trade wars go, Thursday’s pledge by U.S. President Donald Trump of an additional 10% in tariffs on Chinese exports shook the markets to their core. The fallout was immediately seen in WTI crude, as concerns over weakened future demand prospects drove panic selling. The result was the worst day for WTI in more than four years, a session drop of nearly 8%.

Early trade has brought WTI bargain hunters to the table. Let’s dig into the technicals and see if this morning’s opening bounce may have some staying power, or if concerns over escalating trade wars will rule the day.

Fears Over Extended Trade Wars Hammer WTI Crude

No doubt, Trump’s tweet didn’t do much good for energy bulls. The swift drop in WTI pricing implied that energy traders are extremely concerned about the future of Chinese demand for oil.

September WTI Crude Oil Futures (CL), Daily Chart
September WTI Crude Oil Futures (CL), Daily Chart

At press time (10:15 AM EST), September WTI is trapped between two key levels:

  • Resistance(1): 38% Retracement of 2-Session Plunge, $55.59
  • Support(1): 62% Macro Wave Retracement, $54.77

Bottom Line: The volumes hitting September WTI are massive. More than 350,000 contracts have already changed hands, with most of the U.S. session still left to go. If we see a buyback, a sell from topside resistance may come into play later this afternoon.

Until the closing bell, I will have sell orders queued up in September WTI from $56.89. With an initial stop at $57.12, this trade produces 25 ticks on a slightly-better-than-1:1 risk vs reward ratio.

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