crude oil

$40.00 Remains The Key Level For WTI Crude Oil

Posted Friday, September 25, 2020 by
Shain Vernier • 2 min read

Since Monday’s sell-off in WTI crude oil, it has been a relatively slow week. Prices of November WTI are in rotation near $40.00 amid falling supplies and new demand-side questions. With 1 October quickly approaching, energy traders are treading lightly as global oil rotates in a tight four-day pattern.

It’s Friday and that means that the Baker-Hughes Rig Count is out. This week’s numbers show 183 rigs in operation, up four from last Friday’s 179. The gain is one of the largest in recent memory, a product of rising oil prices. However, while $40.00 crude oil is encouraging for some in the fracking industry, experts claim that drilling won’t pick up until $50.00 is established. As fall and winter seasonality approaches, a bullish rally in WTI becomes more and more unlikely.

For the immediate future, there are two issues that are having an impact on oil prices. Here’s a quick look at each:

  • COVID-19: COVID-19 infections are on the rise in several geographic regions. Demand-side questions are swirling, specifically regarding another period of travel and economic lockdowns.
  • Biden Energy Policy: U.S. Democratic presidential candidate Joe Biden has repeatedly stressed he will ban fracking on federal lands. This is a key development for the Texas/New Mexico Permian Basin reserves. Most of the fracking in New Mexico is done on federal lands ― the ban will effectively put regional drillers out of business. While this isn’t a huge market driver, it does suggest that significant production may go offline if Biden wins the White House.

In any case, WTI crude oil futures continue to tighten near the $40.00 handle. Let’s dig into the daily technicals and see where this market stands ahead of the weekend.

November WTI Crude Oil Futures Stall Near $40.00

For the fifth-straight session, the $40.00 level has drawn both buyers and sellers to November WTI crude oil futures. As of now, the consolidation appears destined to extend into next week.

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

Overview: At press time (1:15 PM EST), November WTI crude oil is trading in a non-committal area. Price is firmly between the Bollinger MP and Daily SMA, oscillating within $40.25 and $40.00. Over the past four days, this has become an area of fair value. When WTI finally moves, and it will, the trend is highly likely to originate in this area.

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