May WTI Reaction to $106.12 – $101.32 Sets Near-Term Course

U.S. West Texas Intermediate crude oil futures are edging higher on Thursday as speculator demand bounced back following yesterday’s steep decline.

On Wednesday, the U.S. benchmark contract posted its biggest daily drop in percentage terms in about two years after the United Arab Emirates (UAE) backtracked on statements saying that OPEC and its allies might increase output to help to plug the gap in exports from Russia.

At 15:04 GMT, May WTI crude oil futures are trading $107.29, up $2.24 or +2.13%. The United States Oil Fund ETF (USO) is at $75.69, up $0.227 or -11.68%.

Today’s price action suggests traders should be prepared for continued volatility with tight global supplies remaining the key issue.

In the U.S., crude inventories fell by 1.9 million barrels in the week to March 4 to 411.6 million barrels. Meanwhile, U.S. crude stocks in the Strategic Petroleum Reserve fell to 577.5 million barrels, the lowest since July 2002.

While most of the fundamentals point toward higher prices, bullish traders are also concerned about a U.S.-Iran nuclear deal and the lifting of sanctions against Venezuela that would lead to more oil hitting the market.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through $126.42 will signal a resumption of the uptrend. A move through $85.81 will change the main trend to down.

The minor trend is also up. A trade through $88.49 will change the minor trend to down. This will shift momentum to the downside.

The short-term range is $85.81 to $126.42. Its retracement zone at $106.12 to $101.32 is support.

The minor range is $126.42 to $99.55. Its retracement zone at $112.99 to $116.16 is the nearest upside target and potential resistance.

Daily Swing Chart Technical Forecast

The direction of the May WTI crude oil market into the close on Thursday is likely to be determined by trader reaction to $106.12.

Bullish Scenario

A sustained move over $106.12 will indicate the presence of buyers. If this creates enough upside momentum then look for the rally to possibly extend into $112.99 to $116.16.

Aggressive counter-trend sellers are likely to come in on the first test of $112.99 to $116.16. They are going to try to form a potentially bearish secondary lower top. Trend traders are going to try to drive the market through $116.16 in an effort to challenge the main top at $126.42.

Bearish Scenario

A sustained move under $106.12 will signal the presence of sellers. Their first target is the Fibonacci level at $101.32, followed by yesterday’s low at $99.55.

The daily chart indicates there is plenty of room to the downside under $99.55 with potential targets the minor bottom at $88.49, and the main bottom at $85.81.