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A Quiet Friday For WTI Futures As Rollover Approaches

Posted Friday, June 12, 2020 by
Shain Vernier • 2 min read

WTI futures are attempting to rebound from a severe, 8% pullback that occurred Thursday. At press time (about 1:30 PM EST), July WTI crude oil is trading in the vicinity of $36.00, near flat on the session. Volumes are becoming diluted due to rollover, with the focus remaining on the July contract at roughly a 2/1 clip. 

Well, it’s Friday and that means the Baker-Hughes North American Rig Count is out. This week’s numbers show another historic decrease. U.S. oil rigs in operation now number 199, down from 206. While the drop is somewhat negligible, North American shale producers continue to cut production to deal with this spring’s downturn.

Trading WTI futures near contract rollover is always a tricky business. Split volumes create turbulent market conditions, featuring choppy price action and limited liquidity. During such periods, piling on the leverage isn’t the best idea. But, opportunities still exist ― let’s dig into the daily technicals for July WTI crude and see if we can spot a trade or two.

July WTI Futures Attempt Rebound

One striking observation from this month’s crude oil futures rollover is the tightening of spreads. Remember the massive $10.00+ WTI spreads from earlier this year? Those are long gone, as the July/August split is now a modest $0.27. If nothing else, the tight spreads suggest that things are getting back to normal for WTI futures.

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

Here are the technical levels to watch for July WTI ahead of rollover:

  • Resistance(1): GAP Area, $41.88-$37.33
  • Support(1): Bollinger MP, $34.18
  • Support(2): Daily SMA, $33.04
  • Support(3): 38% Retracement, $31.59

Bottom Line: The key numbers in this market are the 38% Retracement ($31.59) and the GAP Area ($41.88-$37.33). For now, it appears that the GAP is setting up as valid resistance. If prices fall from here, a buying opportunity may come into play from downside support.

As long as the Swing High of $40.44 remains intact, I will have buy orders in queue from $31.76. With an initial stop at $31.19, this trade produces 57 ticks on a standard 1:1 risk vs reward ratio. Although this recommendation may take some time to become active, it has a decent shot of going live before the official WTI futures rollover later this month.

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