The West Texas Intermediate Crude Oil market has rallied significantly during the trading session on Friday, reaching above the $60 level before pulling back just a bit. There is a significant amount of resistance between the $60 level and the $62.50 level. With this, I think it’s very difficult to continue going higher as the WTI market will continue to struggle in this area.
Looking at the moving averages though, the 50 day EMA has crossed above the 200 day EMA. At this point in time, the market is likely to continue to attract a lot of longer-term money, but it’s not until we break above that previously mentioned $62.50 level that the market will be free to go much higher. Yes, OPEC has recently introduced production cuts of 500,000 barrels a month, on top of the 1.2 million barrels a month that had been in effect. By extending all of that, the idea is that they are trying to cut down supply, thereby driving up demand. However, they are learning that the biggest problem you have out there is the fact that there could be a significant lack of demand.
Furthermore, the EIA suggested that the markets will probably continue to face a glut of crude oil through 2020. If that’s going to be the case, crude oil is going to continue to struggle and therefore I think it’s going to take a lot of effort to finally break through this resistance. Otherwise, we will simply drop from here and go looking towards the bottom of the overall consolidation again, but that obviously would be a longer-term trade. Oil will continue to put traders to sleep in my estimation, as we simply go back and forth and move very little.
One thing that’s worth noting is that even with the US and China agreeing to a “phase 1 deal” in principle, crude oil markets cannot hang on to most of the gains for the trading session, even though it’s at a technically significant level. At this point, the market looks as if it is on the precipice of trouble, but the one thing that we don’t see is a lot of erratic behavior. I anticipate that if you can drill down to short-term chart, you probably continue to play the resistance barrier for an entry price to the short side, and the $58 level underneath for an entry from the long.
