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Crude Oil Price Forecast: WTI Volatility Begs Questions of Possible Top

Crude Oil Price Forecast: WTI Volatility Begs Questions of Possible Top

2018-07-17 20:30:00
Tyler Yell, CMT, Currency Strategist
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Crude Oil Price Forecast Talking Points:

  • The ONE Thing: The drop in Crude aligns with the volatility seen after new highs are hit. Over the last 12 months, a new high tends to be followed by a 5-10% drop. Traders should look to the DoE weekly inventory print tomorrow to see the front-month crude oil contract finds support, which would likely align with short-covering from shorter-term traders who correctly anticipated volatility after the new YtD high at $74.08/bbl.
  • The potential of an SPR release by the US and potentially softer stance on Iranian exports have lessened the supply shock fears that were previously seen in futures calendar spreads. As such, backwardation remains but has weakened when looking at the December18-December 19 contract. Brent backwardation is at the lowest since February 13.
  • WTI Crude Oil Technical Analysis Strategy: Crude oil has retracted predictably toward the 200-DMA after trading at new highs in recent weeks. Since September, the price of WTI has held above the 200-DMA despite headlines volatility. Another hold of this key support point would favor trend continuation.
  • Access our latest Crude Forecast for Q3 2018 here

KEY TECHNICAL LEVELS FOR WTI CRUDE OIL:

  • Resistance: $70.87– 61.8% retracement of July range
  • Spot: $67.18/bbl
  • Support: $63.41– June low preceding June 18-July 3 breakout to new 3yr highs

Are Supply Pressures Set To Ease Materially?

After saying OPEC had been artificially keeping Oil prices high, news broke last week that the Trump administration may take some of the pressure out of the physical oil market by potentially tapping into the US’ emergency reserves. The Strategic Petroleum Reserve or SPR is receiving attention ahead of campaigning for the November elections as gas prices have risen nearly 30% YoY. JP Morgan has come out with a view that the spread between September & October will continue to tighten on a potential SPR release, which would presumably keep the pressure on the price of oil.

In addition to the mention of reducing supply pressure through the SPR, there has been a discussion of easing up on the timing of Iranian sanctions that would reduce the fear of a negative supply shock. Despite the potential easing, oil market volatility as measured by the CBOE/NYMEX moved toward the highest levels in a year. If support at $63.41 does not break, it could show that a blowout of fear into support.

Daily NYMEX WTI – Has This All Been Done Before?

Please add a description for the image.

Chart Source: Pro Real Time with IG UK Price Feed. Created by Tyler Yell, CMT

The chart above is showing a familiar pattern of new 3yr highs followed by a sharp pullback. This process has repeated since January two more times including the current pullback.

For now, traders should look at the 200-DMA at $64.61 and the June low at $63.41 as key support. An inability of price to break below this zone combined with a pullback in the CBOE/NYMEX volatility index could mean the pattern is playing out again, and that a slow move toward new three year highs is underway that could target $77/bbl.

Unlock our Q3 18 forecast to learn what will drive trends for Crude Oil in a volatile Q3

Recommended Reading: 4 Effective Trading Indicators Every Trader Should Know

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---Written by Tyler Yell, CMT

Tyler Yell is a Chartered Market Technician. Tyler provides Technical analysis that is powered by fundamental factors on key markets as well as trading educational resources. Read more of Tyler’s Technical reports via his bio page.

Communicate with Tyler and have your shout below by posting in the comments area. Feel free to include your market views as well.

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