Oil Price Fundamental Daily Forecast – No Change in the Story, Market Testing Key Technical Retracement Zones

The early price action suggests that the crude oil markets may have found their value zones, at least temporarily. If buyers can build a support base then we could see a short-term retracement of the sell-off.
James Hyerczyk
Crude Oil

U.S. West Texas Intermediate and international benchmark Brent crude oil futures are trading slightly higher early Tuesday as traders return after Monday’s U.S. Memorial Day holiday. Traders in the U.S. are primarily reacting to the inside trading action in Asia.

At 0601 GMT, July WTI crude oil is trading $66.89, up $0.43 or +0.63% and July Brent crude oil is at $75.73, up $0.47 or +0.62%.

Daily June West Texas Intermediate Crude Oil

There was no change in the fundamentals which suggests the early price action is probably being fueled by position-squaring and profit-taking after the markets reached key technical retracement zones that tend to become support.

From April 6 to May 22, WTI crude oil rallied from $61.73 to $72.90. From the May 22 top at $72.90, it took only four trading sessions to drive the market into a 50% to 61.8% retracement zone at $67.32 to $66.00. This zone is currently being tested. The WTI futures contract could consolidate inside this zone due to profit-taking and position-squaring.

The Brent futures contract rallied from May 2 at $72.37 to $80.50 on May 17. On Monday, it tested its retracement zone at $76.44 to $75.48. Early Tuesday, it is trading inside this zone.

Fundamentally, there has been no change in the bearish narrative that drove prices sharply lower last week and especially on Friday. Traders continue to be convinced that Saudi Arabia and Russia are planning to increase output starting in June by at least 1 million barrels per day to make up potential shortfalls from Venezuela and Iran.

Daily July Brent Crude

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The early price action suggests that the crude oil markets may have found their value zones, at least temporarily. If buyers can build a support base then we could see a short-term retracement of the sell-off.

The markets could also be pausing before the next leg down. We’re just going to have to watch the price action and order flow to determine if buyers are coming in or if sellers are still willing to press the market lower from current price levels.

The short-covering could become more aggressive if July WTI crude oil can cross to the bullish side of the technical level at $67.32. Otherwise, look for an extension to the downside if $66.00 fails to hold as support.

As far as July Brent crude oil is concerned, the market could strengthen over the short-run over $76.44 and weaken further if $75.48 is taken out with conviction.

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