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WTI Crude Oil Price Forecast: Pivotal $38/bbl Is Firm Resistance

WTI Crude Oil Price Forecast: Pivotal $38/bbl Is Firm Resistance

Tyler Yell, CMT, Currency Strategist

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Talking Points:

    A mysterious even happened as markets opened in 2016. Oil rose. Nevertheless, before lunch would ring in London on January 4, the first trading day of 2016 Crude fell. What is interesting is where Crude fell from yesterday. There was a confluence of resistance at the $38/bb zone that saw Crude post a bearish Shooting Star formation. However, the most notable part of that zone of resistance is that the zone includes the August 24 closing low. When past support acts as new resistance that can be a prelude to a very strong move. Fundamentally, the rise in Oil was blamed on tensions between Saudi & Iran. However, it seems that the disagreement between the two Oil-producing nations shows there is a lack of supply control, which very well may continue to add to price pressure on the commodity. Of course, this aligns with rising non-OPEC supply from Russia & the United States which aligns with the bearish technical picture. If there is a bullish note on Oil, it has to do with Institutional Positioning as Hedge funds close out 14,699 bets that crude oil will fall according to Commodity Futures Trading Commission data. However, short covering and new longs are not the same things, and Oil is mainly seeing the former in play.

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    Last year, WTI Crude Oil was down ~35% YTD. As we start the year, Monday’s high of $38.36 will be resistance with many sell-side desks on Wall Street looking at the upper $20/barrel range. Today’s bid in the US Dollar appears ready to take US Dollar Index toward new highs after holding the 100-DMA, which is inversely correlated to US Oil, and that could drive prices in Crude lower. For now, the zone around the August 24 low of $37.73 is resistance, and until price closes above that level, the downside remains favored.

    The price targets look below the $34.25 low on December 18 toward the 2008 and 2009 extremes. The 2009 low of $33.50 aligns neatly with $33.20, the closing low on December 18, 2008.The warning that oil may continue to fall even lower as inventories swell remains appropriate and the pressure does not appear ready to let up anytime soon. From a sentiment perspective, our internal readings are showing an SSI reading of +1.0857.We use our SSI as a contrarian indicator to price action, and the fact that the majority of traders are bullish provides a signal that US Oil may continue lower.This trend lower in US Oil will remain in place as price trades below resistance of the August 24th low of $37.73/bbl, and we’ll keep an eye out on the 2008 extremes, which is highlighted on the chart below. Additionally, RSI(5) is turning lower from 70 again as it did at the beginning and end of November before marching much lower.


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