WTI crude oil has been in a consolidation phase for the past two weeks, giving trend traders fits. Every time a breakout appears to be setting up, price extension is checked hard. This has been the case thus far in Thursday’s trade. For the first 30 minutes after the traditional 9:00 AM EST pit open, price has traded in a tight 32 tick range. Is more compression in the cards for the rest of the U.S. session?

Inventories And OPEC

My colleagues Rowan and Arslan have done a great job of breaking down this week’s crude oil inventories reports. If you haven’t read their articles from earlier, be sure to do so.

For those that are a bit late to the game, here are the hard numbers from this week’s oil stocks releases:

• API stocks came in at 3.427 million barrels, up from 1.099 million.
• EIA inventories came in at 6.218 million barrels, over projections of 0.739 million.

Many traders are surprised by these numbers. In the wake of OPEC and Russian production cuts, inventories are expected to shrink throughout 2018.

Unfortunately for OPEC, North American fracking operations are coming online in a big way. Production is being ramped up in the Permian Basin (TX) and in the Bakken shale play (North/South Dakota, Montana). These installations have immense output capabilities. It will be interesting to see if OPEC and Russian interests continue to temper production and exports in the face of growing supply.

WTI Technicals

For June WTI crude oil futures, there is a defined support level setting up on the daily time frame.

Converging technical levels are a good thing. We have an area setting up as robust support on the daily chart:

• Support(1): 20 Day SMA, $67.00
• Support(2): Bollinger MP, $66.65
• Support(3): 38% Current Wave, $66.48
• Support(4): Daily SMA, $66.10

Bottom Line: The area between $67.00 and $66.10 is poised to be the next compression zone for crude oil. This zone is wide and I expect it to tighten by week’s end. For now, buys from $66.66 with an initial stop at $66.34 are a positive way to play a bullish bounce from support. Using a 1:1 R/R scenario, this trade yields 32 ticks on a return to the $67.00 level.