Crude Oil Price Update – Prepare for an Extended News Driven Rally

January West Texas Intermediate crude oil futures are trading higher early Monday. The move is a continuation of the rally from Monday which was fueled by a spike in Brent crude oil to its highest level in 2 ½ years. The catalyst behind the rally was news that a major pipeline in the U.K.’s North Sea will shut down for repairs.

According to reports, the Forties pipeline system will close for several weeks while its operator, INEOS, repairs a crack in a pipe discovered last week. The pipeline is responsible for about 450,000 barrels a day of Forties crude from offshore fields in the North Sea to a processing plant in Scotland.

The current rally is all about momentum and news driven. The real play is in the Brent futures contract. However, if it continues to move into the $67.00 to $70.00 area, it could drive the WTI contract through the November 24 main top at $59.05. The longer-term 50% level is $63.95.

Daily Technical Analysis

The main trend is down according to the daily swing chart, however, momentum has shifted to the upside. A trade through $58.88 will change the main trend to up. This could lead to a quick test of the next main top at $59.05. This is the trigger point for a potential acceleration to the upside.

The short-term range is $55.00 to $59.05. If the rally should happen to stall then its retracement zone at $57.03 to $56.55 will become the primary downside target.

Daily Technical Forecast

Based on the early trade, the direction of the crude oil market the rest of the session will be determined by trader reaction to the downtrending Gann angle at $58.44.

Overtaking $58.44 and sustaining the move will indicate the presence of buyers. This could lead to a fast move into the next downtrending angle at $58.66. This is the last potential resistance angle before the $58.88 main top.

A sustained move under $58.44 will signal the presence of sellers. If the selling is strong enough, we could see a pullback into the next downtrending Gann angle at $58.01. This price is the trigger point for a possible break into the steep uptrending angle at $57.32.

The news about the Forties pipeline is serious since the shutdown may last weeks. The pipeline is responsible for about 450,000 barrels a day of Forties crude from offshore fields in the North Sea to a processing plant in Scotland. This news combined with the OPEC-led production cuts should put a dent in supply over the near-term.