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James Hyerczyk

U.S. West Texas Intermediate crude oil posted a double-digit loss on Friday, after serving up double-digit gains the previous session. The moves more than highlight the extreme volatility traders are facing during the coronavirus outbreak.

WTI crude oil plunged nearly 8% more than international-benchmark Brent crude oil due to the April contract expiration. Prices also fell as traders failed to respond to the unprecedented aid into the global economy by central banks and governments to stop a coronavirus-driven recession.

On Friday, May WTI crude oil settled at $22.63, down $3.18 or -12.32%.

While most traders are bracing for the dumping of about 4 million barrels of crude oil on the market starting April 1 by Saudi Arabia and Russia, other are holding out hope that a weaker U.S. Dollar and a truce to end the price war between the Saudis and Russians will stabilize prices and lead to a massive short-covering rally.

Daily May WTI Crude Oil

Daily Technical Analysis

The main trend is down according to the daily swing chart. A trade through $20.52 will signal a resumption of the downtrend. This could lead to a test of the November 2001 bottom at $19.44. The main trend will change to up if buyers can take out the last main top at $36.70.

The minor range is $20.52 to $28.49. Its 50% level or pivot at $24.50 is an important level to watch on Monday. Aggressive counter-trend buyers are going to try to use this pivot to form a secondary higher bottom. Bearish traders will use it as resistance.

The short-term range is $36.70 to $20.52. Its retracement zone at $28.61 to $30.52 is resistance. Friday’s rally stopped just short of the lower or 50% level at $28.61.

The intermediate range is $48.82 to $20.52. Its retracement zone at $34.67 to $38.01 is resistance.


Short-Term Outlook

It’s hard to conceive of any reason for a rally unless Saudi Arabia and Russia agree to a truce that temporarily stops the price war and the release of millions of barrels of crude oil on the market.

A sustained move under $24.50 will indicate the presence of sellers. If this creates enough downside momentum then look for the selling to possibly extend into the main bottom at $20.52, followed by the November 2001 bottom at $19.44. This is another potential trigger point for an acceleration into the psychological $15.00 level.

I don’t think that major commercial buyers are too concerned about getting a great price at current levels. Just look at how the countries have been buying crude to fill their reserves. They just know prices are cheap. They’re going to be happy to get a lot of crude at cheap prices, but they’ll be happier if the price war is called off.

Crossing to the strong side of the pivot at $24.50 will signal the return of buyers. If this move is able to generate enough upside momentum then look for the rally to possibly extend into the 50% level at $28.61, a downtrending Gann angle at $29.70 and a Fibonacci level at $30.52.

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