James Hyerczyk
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Crude Oil

The trading also seems tentative, which is not that much of a surprise due to last Friday’s excessive volatility. That trading session was a bloodbath for the longs and sometimes it takes days for the fund traders to recover from the heightened volatility. Options traders in particular were probably shaken the most by the spike in volatility.

At 08:15 GMT, June WTI crude oil is trading $63.12, down $0.48 or -0.75% and July Brent crude oil is at $71.71, down $0.47 or -0.65%.

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Underpinning prices continue to be the Big Three:  OPEC-led supply cuts, Venezuelan sanctions and the expanded sanctions against Iran.

The production cut deal between OPEC and its allies is the glue preventing the crude oil market from collapsing. However, there is talk that Russia may decide to pull out of the agreement in order to go after increased market share. This will become more of an issue as we approach the June OPEC meeting.

The political crisis in Venezuela is escalating. The sanctions against Iran are expanding and there is always the potential for a military skirmish in Libya.

Over the near-term, it looks as if OPEC’s main concern will be how to fill the holes in supply left by Venezuela, Iran and Libya.

Rising U.S. stockpiles are another issue, but this is out of OPEC’s control. On Wednesday, the U.S. Energy Information Administration (EIA) reported that stockpiles rose to their highest level since 2017.

The EIA said on Wednesday that U.S. crude stockpiles rose during the week ending April 26 to their highest level in nearly two years, jumping by 9.9 million barrels to 470.6 barrels, as a production set a record high of 12.3 million barrels per day (bpd), while refining activity rates fell.

Daily Forecast

The early price action suggests investors are still trying to find a value zone or balance point on the charts. For WTI that zone is $63.48 to $59.73. Yes, it’s pretty wide so we could see some back and forth trading around $63.48. If this price becomes resistance then look out to the downside. One other target is the 200-day moving average at $60.79. The hedge and commodity funds are watching this level. They may buy on a test of this level, but they will also bailout if this level is taken out.

The key level for July Brent crude oil is $71.51. If this price fails then look for a sideways to lower trade develop with $70.17 the next major support.

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