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Talking Points:

  • Crude Oil Technical Strategy: Resistance Has Arrived, Watching for Breakdown
  • The US Dollar Has Found Itself In a No-Win Scenario That Could Limit Downside Force On Crude
  • Channel Resistance From Late-January Highs Appears A High Hurdle For Bulls To Climb

Too Much Stock, Too Little Flow

On Thursday, U.S. Crude Inventories in Cushing Oklahoma pushed ever closer to max storage capacity as the U.S. Stock of Crude Oil inventories advanced to levels not seen since 1930. The rise in price since February 11th have been centered around the hope that a supported agreement by Russia and Saudi Arabia could limit the amount of Oil brought onto the market, which continues to distort the supply-demand imbalance.

The mixed API & DoE reports this week further fail to provide confirmation for either the bulls or bears, but as of now the burden of proof remain squarely on the Bulls. Selling could intensify if we get reports that Iran’s support of the frozen production is waning or if the agreement between Russia & Saudi falls apart altogether as was reported on Thursday after the DoE number by Agence France-Presse.

AFP also noted that the Foreign Affair’s Minister Al-Jubeir stated they are going to allow Oil prices to be, “determined by supply and demand and by market forces.” Unfortunately, the market forces have continued to sell oil and use less relative to the stock available. In other words, the market is hurt by a stock and flow problem where there is too much stock and not enough flow, and it doesn’t appear the stock is slowing down.

US Oil Has met Channel Resistance from Late-January Highs Which Could Be A High Hurdle for Bulls

WTI Crude Oil Price Forecast: 86-Year High In U.S. Crude Inventories Cheers Bears

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Key Levels from Here

The price-driven bear channel has done a remarkable job of containing price action on the downside and upside after topping out at $34.79/bbl in late January. Now attention turns to key levels of support and higher lows on the move higher from $26.03/bbl. The most immediate level is near $30.45/bbl, which is a recent corrective low and nearly 50% of the 34.79-26.03 range. The next and more prominent level that would favor a retest and break of the 26.03/bbl and to new channel lows is $28.75/bbl.

What catches my eye on the chart is the consistent ‘three-wave’ moves. Three-wave moves are a mainstay of Elliott Wave Analysis, which says these moves are counter-trend as opposed to a ‘five-wave’ trend-advancing move. From the January 20 low, we have seen consistent three-wave moves that would argue the sideways price action and confusing rhetoric from OPEC are providing time to rest and catch your breath before the next down leg. This view would be validated on a break of support mentioned above of $28.75/bbl.

Contrarian System Warns of Further Price Pressure

In addition to the technical pressure that Oil may have found at trendline resistance, the larger bearish view aligns with our Speculative Sentiment Index or SSI. Our internal readings of Oil are showing an SSI reading of 2.0225. We use our SSI as a contrarian indicator to price action, and the fact that the majority of traders are now bullish provides a contrarian signal that US Oil may continue eventually lower. If the reading were to turn negative again, and the price broke back above $34.79bbl, we could begin looking for a retest of the YTD high of $38.36.

T.Y.

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