Oil Price Fundamental Daily Forecast – Brent, WTI Divergence Could Be Indicating Short-term Top

U.S. West Texas Intermediate and international-benchmark crude oil finished lower on Thursday, giving up earlier gains that sent WTI prices to their highest level since April 19. Brent crude posted an intraday rally but failed to make a new high for the week.

November WTI crude oil settled at $51.58, down $0.56 or -1.07% and December Brent crude oil finished the session at $57.24, down $0.33 or -0.57%.

Earlier gains were spurred by tension around northern Iraq following the Kurdistan region’s vote in favor of independence. On Thursday, Turkey promised to deal only with the Iraqi government on crude, “restricting oil export” operations to Baghdad, the office of Iraqi Prime Minister Haider al-Abadi said. The referendum vote also prompted Turkey to threaten to close the region’s oil pipeline.

Traders said that shutting the pipeline could mean 500,000 to 550,000 barrels per day of crude oil may not reach the market. Analysts also put the chances of shutting down the pipeline linking northern Iraq and Ceyhan in Turkey at about 20 percent.

November WTI crude oil futures posted a dramatic technical closing price reversal top on Thursday in reaction to the geopolitical events in Turkey. This was the second potentially bearish chart pattern this week. This is a stronger indication that the selling may be greater than the buying at current price levels.

WTI traders should watch the price action and read the order flow on a test of $51.22. Taking out this level with conviction could trigger a further break into $50.23 to $49.60 over the near-term.

The Brent futures contract did not post a similar move. This indicates a divergence between the two futures contract. If the selling pressure continues then look for a pullback into at least $55.88 to $55.17 over the near-term.

Although both WTI and Brent crude oil are in a position to close higher for the week, the daily price action suggests the market may be ripe for a near-term correction.

The supply and demand fundamentals are underpinning the market and the news is a positive, however, hedge fund investors may be looking for value at this time rather than chasing the market higher. If this is a valid conclusion then look for the near-term correction to take place.

The correction may be necessary to alleviate some of the upside pressure. It will also allow a few of the weaker longs to book profits while waiting for the markets to pull back to more favorable price levels.