Crude Oil Update – End of the Month Position-squaring Fuels Short-covering Rally

End of the month position-squaring is helping to boost June West Texas Intermediate crude oil shortly before the opening on Friday. Traders are also reacting to the news that producers could decide to extend output cuts at the May OPEC meeting. The weaker U.S. Dollar is also contributing to the rally as well as reports that Russia was fully compliant with output limits agreed among major producers late last year.

Technical Analysis

The main trend is down according to the daily swing chart, however, the formation of a new minor bottom at $48.20 suggests that momentum may be getting ready to shift to the upside. The price action also suggests that buyers may be coming in to defend the March 22 bottom at $47.58.

Standing in the way of a breakout to the upside is a pair of minor tops at $50.20 and $50.22.

The main range is $47.58 to $54.14. Its retracement zone is $50.09 to $50.86. This zone is controlling the longer-term direction of the market and should also be considered resistance.

Forecast

Based on the current price at $49.46 and the earlier price action, the direction of the market today is likely to be determined by trader reaction to the uptrending angle at $49.21.

A sustained move over $49.21 will indicate the presence of buyers. This could create the upside momentum needed to challenge the major Fib level at $50.09 and the pair of minor tops at $50.20 to $50.22. Overtaking this levels will likely lead to a test of the major 50% level at $50.86.

The inability to sustain today’s earlier rally and a break back under $49.21 will signal the presence of sellers. This could lead to an acceleration to the downside since the next target doesn’t come in until $48.39. This is the last potential support angle before the $48.20 minor bottom and the $47.58 main bottom.

Look for a bullish tone to develop on a sustained move over $49.21 and a bearish tone on a sustained move under this price.