The direction of the September WTI crude oil futures contract on Friday is likely to be determined by trader reaction to $71.38.
U.S. West Texas Intermediate crude oil futures are edging lower early Friday on expectations of more crude supply after a compromise deal between leading OPEC producers and a surprisingly poor weekly reading on U.S. fuel demand.
At 05:53 GMT, September WTI crude oil is trading $71.22, down $0.16 or -0.22%.
To recap the events leading up to this week’s sell-off, on Wednesday, Reuters reported that Saudi Arabia and the United Arab Emirates had reached an accord that should pave the way for a deal to supply more crude to a tight oil market.
Also on Wednesday in the United States, a large drawdown in crude stockpiles did little to boost prices as investors focused on rising fuel inventories in a week that included the Fourth of July holiday, when driving usually surges.
The main trend is down according to the daily swing chart. The formation of a secondary lower top this week is also potentially bearish.
A trade through $70.10 will signal a resumption of the downtrend. A move through $74.90 will change the main trend to up.
On the upside, potential resistance is a 50% level at $71.96 and a short-term retracement zone at $73.08 to $73.79.
The nearest support is a 50% level at $70.33.
The main range is $61.06 to $76.07. Its retracement zone at $68.57 to $66.79 is the primary downside target.
The direction of the September WTI crude oil futures contract on Friday is likely to be determined by trader reaction to $71.38.
A sustained move under $71.38 will indicate the presence of sellers. This could create the downside momentum needed to challenge $70.33 – $70.10.
Taking out $70.10 will reaffirm the downtrend. This could trigger an acceleration to the downside with the next minor target area $68.86 – $68.57.
The primary downside target or potential value zone is $68.57 to $66.79. Counter-trend buyers could step in on a test of this area.
A sustained move over $71.38 will signal the presence of counter-trend buyers. This could trigger the start of a labored rally with potential upside targets lined up at $71.96, followed by a retracement zone at $73.08 to $73.79. Since the main trend is down, sellers are likely to come in on a test of this retracement zone. They are going to try to form another secondary lower top.
James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.