Crude Oil Price Update – Down on Rumors of Nine-Month Extension, No Further Cuts

July West Texas Intermediate crude oil futures are trading lower after an early attempt at a break out to the upside failed. The market is breaking lower on rumors that OPEC reportedly announced it would extend cuts in oil output by nine months to March 2018.

The current price action suggests a potentially bearish closing price reversal top may be forming. This is not really a surprise because the market was set up for a “buy the rumor, sell the fact” situation. The market has been rallying because traders have been anticipating a nine month extension. What they really needed to extend the rally were deeper production cuts.

So essentially, the early action suggests the news of the extension had already been baked into the price.

Technical Analysis

The main trend is down according to the daily swing chart. Despite the rally from May 5 until today, the market never crossed a swing top so essentially, all it did was retrace the April to May break.

Momentum did shift to the upside, but that can easily shift back down today with the formation of a closing price reversal top and a close below $49.29.

On the upside, the major 50% level comes in at $51.68. This is followed by the main top at $54.45.

The main retracement zone and potential support is $50.51 to $49.29.

The short-term range is $44.13 to $52.00. If there is a correction over the near-term then its retracement zone at $48.07 to $47.14 will become the primary downside target.

Forecast

Based on the current price at $50.72 and the earlier price action, the direction of the crude oil market the rest of the session is likely to be determined by trader reaction to the Fibonacci level at $50.51.

A sustained move over $50.51 will indicate the return of buyers. Overtaking angles at $50.70 and $51.13 will indicate the buying is getting stronger. This could trigger a further rally into the 50% level at $51.68, followed by the high at $52.00.

Overtaking $52.00 will be another sign of strength with the next target angle coming in at $52.58. This is the trigger point for a rally into another downtrending angle at $53.51. This is the last potential resistance angle before the $54.45 main top.

A sustained move under $50.51 will signal that the selling is getting stronger. This could trigger a further acceleration to the downside with the next target $49.29. This is another trigger point for an even steep break into $48.07 and $47.69.

Watch the price action and read the order flow at $50.51 all session. Trader reaction to this level will determine the direction of the market the rest of the day.