Crude Oil Update – Prices Supported by Oversold Technical Factors

Technical factors are contributing the most to today’s early strength in the May West Texas Intermediate Crude Oil market. Buyers came in late Wednesday to support prices as the market neared its November 2016 main bottom. Despite the rally, gains are likely to be limited by the U.S. crude oil supply glut and rising output.

The U.S. supply glut continues to be the dominant force in the market, even overcoming OPEC’s attempt to control the world oil supply through cuts in production for OPEC and non-OPEC members.

The market is at risk of dropping further due to increasing U.S. output and a lack of compliance by some producers who said they would cut production.

Although OPEC may talk about extending the production cuts beyond its original deadline, this is not likely to occur unless OPEC and non-OPEC members agree to the proposal. This is unlikely, however, because a few countries haven’t been compliant with the first agreement.

Technical Analysis

The main trend is down according to the daily swing chart. A trade through $47.01 will signal a resumption of the downtrend. Taking out $50.14 will change the main trend to up.

The short-term range is $50.14 to $47.01. Its 50% level or pivot is controlling the near-term direction of the market. Overcoming the pivot today will give the market an upside bias.

On the upside, the key target is the main Fibonacci level at $50.26. Besides being resistance, this price is also the trigger point for an upside breakout.

Forecast

Based on the current price at $48.21, the direction of the crude oil market today is likely to be determined by trader reaction to the short-term pivot at $48.58.

A sustained move over $48.58 will indicate the presence of buyers. This could trigger an acceleration to the upside with the next target angle coming in at $49.82. This is followed by the main top at $50.14 and the major Fibonacci level at $50.26.

The inability to overcome $48.58 will signal the presence of sellers. The first target is a short-term uptrending angle at $48.07. This is followed by additional support angles at $47.51 and $47.26. The latter is the last potential support before the $47.01 main bottom.

If $47.01 fails as support then look for a possible acceleration into the November 14, 2016 main bottom at $45.78.