Why WTI Crude may not have the wind in its sails for much longer?
WTI Crude is a favourite market for my subscribers and recent price action makes it worthy of closer analysis.
WTI Crude rallied very strongly in the first quarter of this year from a low at the beginning of January at $91.24 to a high in the beginning of March at $105.22.
The weekly chart below shows a gentle positive up trend:
In the news on Wednesday:
The U.S. Energy Information Administration raised its 2014 forecasts for West Texas Intermediate and Brent crude prices in a monthly report issued Tuesday . The government agency said it expects WTI prices to average $98.67 a barrel this year. It previously forecast a 2014 average of $96.59. – Market watch.com
West Texas Intermediate crude advanced to a three-month high on signs of stronger global economic growth and concern that political tension in Libya will disrupt supplies. “Chinese exports and last Friday’s U.S. payroll numbers are providing some support to oil,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The market still has its eyes on geopolitical risk. And when you throw in expectations that the global economy is improving, you are getting another round of the rally.” – Bloomberg
OPEC will probably maintain its production target at 30 million barrels a day at a meeting in Vienna on June 11. Ministers from Saudi Arabia, Angola and Kuwait said they expect no change, as did 22 of 23 analysts and traders in a separate Bloomberg survey. The 12-member group pumps about 40 percent of the world’s oil. In Libya, output has fallen to about 10 percent of capacity because of protests at oil fields and strikes at export terminals. Hedge funds and other money managers reduced net-long positions in WTI by 1.5 percent in the week ended June 3, the U.S. Commodity Futures Trading Commission said. Bullish bets on Brent crude fell by 7.7 percent in the same period, the first decrease in four weeks, according to data from ICE exchange. – Bloomberg.
So the news in general is positive for the Oil price although note how the professional traders have been reducing their bullish bets on WTI Crude recently. Does the smart money know something that we don’t? So let’s focus on the daily price chart for oil and see if we can find any clues to the future direction. The chart below shows how we have been quite volatile in the last three months and although the dip in early May bottomed out at 98.74 which was above the low in mid-March of 97.37, we have been stuck below the April-March highs of 105.00 – 105.22.
Clearly this area is a significant barrier and only yesterday on 10 June, we reached as far as 105.06 and sold off quite significantly on the day to register quite a negative candle, which in itself could have signalled a high for the early part of June at least. If this is the case and we have seen a top, this would have formed a very negative and in fact very rare triple top pattern. This therefore would be alerting the professionals mentioned above, of a potentially large drop in the price of oil in the weeks and months ahead. Any remaining bulls in this market must therefore see a break and at least a daily close above this year’s high of 105.22. I would really only change my mind and become bullish on a weekly close above this level.
The chart above shows a potential very negative and in fact very rare triple top pattern in WTI Crude.
Time will tell of course but at the moment despite bullish news in the press, I would rather be on the side of the professionals and at least reducing my long positions just in case that rare triple top pattern does turn out to be a negative sell signal.
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