Crude Oil Price Update – Strengthens Over $69.15, Weakens Under $68.05

August West Texas Intermediate crude oil futures spiked as much as 5 percent on Friday after OPEC and other major oil exporters agreed to a modest increase in output to compensate for losses in production in Venezuela and Iran at a time of rising global demand.

In announcing the deal, OPEC said that it would go back to 100 percent compliance with previously agreed output cuts but gave no concrete figures. The actual output increases set a bullish tone, as they came in below some of the highest figures that had been discussed prior to the meeting.

At one point over the last few weeks, some traders priced in an increase of about 1.8 million barrels per day (bpd). The consensus seemed to sit at about 1.0 million bpd for several days, but the actual amount appears to be between 600,000 and 750,000 bpd.

Weekly Technical Analysis

The main trend is up according to the daily swing chart. Despite the four week sell-off, the trend never changed. The momentum shifted to down about three weeks ago, but it changed back up on Friday when buyers took out $67.03. The uptrend will resume on a trade through $72.70.

The main range is $55.25 to $72.70. It retracement zone at $63.98 to 61.92 provided support last week when the selling stopped at $63.40. This zone will be the major support moving forward.

The short-term range is $72.70 to $63.40. Its retracement zone at $68.05 to $69.15 is the first target. This zone was tested on Friday.

Trader reaction to $68.05 to $69.15 will determine the near-term direction of the market. Aggressive counter-trend sellers are going to try to stop the rally in an effort to form a secondary lower top. Bullish trend traders are going to try to overcome this area in an effort to reaffirm the uptrend and make $63.40 a new secondary higher bottom.

Weekly Technical Forecast

Based on last week’s price action and the close at $68.58, the direction of the August WTI crude oil futures contract this week is likely to be determined by trader reaction to the 50% level at $68.05 and the 61.8% level at $69.15.

Overtaking $69.15 will indicate the buying is getting stronger. If this move generates enough upside momentum then look for the rally to extend into the next downtrending Gann angle at $70.20.

We could see a technical bounce on the first test of $70.20, but overcoming it could fuel an acceleration into downtrending Gann angles at $71.45 and $72.08. The latter is the last potential resistance angle before the $72.70 main top.

A sustained move under $68.05 will signal the presence of sellers. Crossing to the weak side of the downtrending Gann angle at $67.70 will indicate the selling pressure is getting stronger. The next target is $66.39, followed by $63.98 then $63.40.

The first move to the upside after a steep break is usually fueled by short-covering. The next move is usually a 50% pullback of the first leg up. If this market is headed higher, then the pullback should attract new buyers. I don’t think investors are going to chase this market higher.