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Crude Oil Weekly Report: How long will Oil rally last?

Crude Oil Weekly Report: How long will Oil rally last?

U.S. WTI  and Brent crude oil futures closed the week higher on Friday.

Which fundamentals drove Crude Oil prices higher this week?

  • Deeper-than-expected OPEC-led production cuts: Saudi Arabia is delivering on the cuts it pledged, and I have no doubt they’ll deliver on pledges to do more. As I mentioned in my previous articles the reason of the big drop on Oil Prices was a production boost from OPEC and an equity sell-off that pushed oil down during the fourth quarter, and now as both of those elements are in reverse prices are going up.
  • Trade Deal Optimism: Press reports suggest that the U.S. and China are making progress on trade negotiations, and President Trump has indicated he would be willing to let the talks continue past the March 1 deadline if progress was significant. Trump is expected to meet with China’s vice premier and top trade negotiator on Friday. There are still thorny issues that will be difficult to solve, but markets are welcoming the potential breakthrough in trade talks.

Meanwhile, the EIA report showed that Crude Oil Inventories stocks rose three weeks in a row.

Simply saying, The U.S production is likely to limit the gains for  WTI in the near future.

WTI vs BRENT

The spread between Brent crude oil and WTI crude oil has risen from a low of $6.80 on January 31 to a high of nearly $10.00 ( Brent Crude Oil ended the week at 66.90). This is the result of a combination of the OPEC-led production cuts and the sanctions against Venezuelan exports, which are supportive for Brent crude oil, and the rising U.S. production, which is helping to limit gains for WTI crude oil.

Baltic Dry Index:

BDI rose a bit in February but it is still not promising for Global Economic Activity. Simply saying: Less economic activity, less Oil demand.

Baltic Dry Index Chart

IEA is not so bullish:

According to the International Energy Agency, the global oil market will struggle this year to absorb fast-growing crude supply from outside the Organization of the Petroleum Exporting Countries (OPEC), even with the group’s production cuts and U.S. sanctions on Venezuela and Iran.

Furthermore, the IEA said it expected global oil demand this year to grow by 1.4 million bpd, while non-OPEC supply will grow by 1.8 million bpd. This doesn’t bode well for the long-term crude oil bulls.

Technically:

WTI Crude Oil Weekly Chart

Short-term, the crude oil market looks bullish, but as WTI and Brent futures contracts approach the 50 % retracement levels from their October highs to their December lows, the rally should stall. This is because the market is still oversupplied.

Furthermore, I don’t think the objective of the OPEC production cuts is to drive the market to triple-digit highs, but rather to reach a fair price while balancing supply and demand.

The main trend is down according to the weekly chart. The market isn’t even close to changing the main trend to up. However, momentum is trending higher. Weekly closing above $ 63.40 will change the main trend from bearish to bullish.

After a firm daily closing above 59.38, could carry the price $62.50. Considering supply/demand balance remains unchanged, a deal between the U.S and China can be the only catalyst for this fresh bullish wave.

Fundamentally, there is no reason for Crude Oil prices to be traded above $ 62.50 for the time being.  Its retracement zone at $59.38 to $62.50 is the primary upside target. Since the main trend is down, sellers are likely to show up on a test of this zone

On the other side, the potential downside move would be limited as well. OPEC + would not let the Oil Prices stay below $ 50.

Simply saying, potential pullbacks towards $ 50 can be used as a buying opportunity.

My medium-term targets are 59.38 and 62.50. I will stop buying at 62.50 and look for a selling opportunity. 

Smaller Charts for Intraday Traders:

WTI Crude Oil H4 Chart

I have published this chart on Thursday. Crude Oil prices tested the ascending trendline and headed North again. The price ended the week at $ 57.14 while testing the trendline again.

RSI is still diverging.

We will look for a short opportunity if the price breaks out the trendline. The first target of the Bears will be 56.25. The breakout of 56.25 would lead the prices 55.75 and 54.70. Those levels can be used as buying opportunities.

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DISCLAIMER: This is a technical analysis study, not advice or recommendation to invest money

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these securities. You should do your own thorough research before making any investment decisions. Chartreaderpro does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Forex involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility

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