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Oil price tested $74 what’s next?

Crude Oil Analysis

Can WTI’s price surge last? 

WTI maintained its upward momentum in the past few days and is currently looking to close higher for the 5th consecutive week. Even though the Oil market’s price trend seems to confirm that the most dominant fundamentals driving the price action are here to stay, this is never the case for the specific industry. 

Studying the past of the Oil market, one would see clearly that supply and demand levels are changing every week, and the market is prone to large swings or even unexpected price movements.

On Friday the 18th of June, the Baker Hughes Oil rig count confirmed that active Oil rigs increased to 373 from the previous 365. The weekly rise in active Oil rigs implies some increase in demand for Oil took place. 

On Tuesday the June 22, the API Weekly Crude Oil stocks confirmed a substantial drawdown of -7.2M barrels, a figure almost double than the drawdown expected. 

Contrary to the surprise, WTI moved slightly higher upon release but rose steadily in the next 16 hours, reaching a new yearly high at about $74 per barrel.

 However, as the market was preparing to release the EIA weekly stock figure, a downtrend started forming. In the end, the EIA showed a significant drawdown of -7.6M barrels, very similar to the previous week’s constitution, which also nearby -7M barrels. Despite the pre-mentioned updates in the most recent sessions, some stabilization has taken place for WTI, which seems to point out the Oil market could be focusing on other aspects that could even be superior to the pre-mentioned ones.

 

In the past days, the media was also absorbed by developments on the OPEC plus front and their plans for the next half of the year as the global economy has shown improvement but has not overcome the pandemic yet. 

According to the Wall Street Journal, the OPEC plus group is considering a rise in production by some 500,000 barrels a day from August onward. 

This can be considered a modest boost to the world’s supply but can destabilise the current supply and demand balance that could impact prices if and when confirmed. 

Of course, the fluctuation of this number is also critical, as the expected amount of barrels can work as a barometer for market reaction. 

An increase in production signals many interesting underline messages. 

First, OPEC plus may feel comfortable with increasing production as, at the moment, the price has risen to favourable levels that could support both revenues and production. Selling barrels at a range of $65 to $70 could prove profitable and suitable for the present moment. 

Secondly, a surge in demand for the commodity worldwide could be kicking in, as more countries are now vaccinated. A considerable immune system is building up in China, the U.S. and parts of Europe. 

The OPEC plus group will meet virtually on the 1 st of July. The discussion may be of great interest, possibly creating volatility for Oil prices; thus, caution is advised.

 From the technical poit of view the price s moving towards 2018 highs. I will keep it simple and will be waiting for price to reject from 75.25 – 77.00 zone of resistance for short opportunity and break above the mentioned zone of resistance for potential long opportunity.

The idea for the short opporunity will be of course short-term and is considered as aggressive speculation with all the current bullish fundamentals and momentum. In case OPEC manages to increase the supply and we see reaction on the chart, the probabilies are going to be higher for so called “deep pullback”

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