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WTI Weekly: Price Discovery Higher Continues To 61.40s

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Includes: AOIL, BNO, DBO, DTO, DWT, NRGD, NRGO, NRGU, NRGZ, OIL, OILD, OILK, OILU, OILX, OLEM, OLO-OLD, SCO, SZO, UCO, USAI, USL, USO, USOI, UWT, WTID, WTIU, YGRN
by: Sharedata Futures
Sharedata Futures
Research analyst, commodities, ETF investing
Summary

Balance development in Monday’s auction as sellers trapped, driving price higher to 60.97s as a buy-side breakout attempt developed into Tuesday’s trade.

The breakout held into mid-week before price discovery higher developed to 61.40s into week’s end.

This week’s auction saw buy-side continuation to 61.40s as the market grinds toward the September supply, 62s-63.35s, overhead.

In this article, we examine the significant weekly order flow and market structure developments driving WTI price action.

As noted in last week’s WTI Weekly, the primary expectation for this week was for price discovery higher, barring failure of 58.80s as support. This expectation did play out as support developed near 59.71s as sellers trapped in Monday’s auction. Price discovery higher ensued as a buy-side breakout above last week’s resistance drove price higher to 61.40s, developing sell excess ahead of Friday’s close, settling at 60.44s.

WTI Composite 13Dec19

15-20 December 2019

This week’s auction saw balance development, 59.71s-60.34s, in Monday’s auction. Sellers trapped, 60.04s, in Monday’s auction and Tuesday’s early trade before price discovery higher developed in a buy-side breakout attempt through last week’s key resistance, 60.48s, achieving a stopping point, 60.97s. Buyers trapped, 60.91s/60.79s, ahead of Tuesday’s NY close.

Minor price discovery lower developed early in Wednesday’s trade to 60.23s where sellers trapped. Price discovery higher developed through the EIA release (-1mil vs. -1.2mil exp) to 61.11s. Buyers trapped again, 61.07s-60.97s, into Wednesday’s NY close. Narrow balance developed, 60.69s-60.94s, before buying interest emerged, 60.94s-61s, driving price higher in buy-side continuation into Thursday’s trade, achieving the weekly stopping point high, 61.40s. Structural sell excess developed there, 61.40s-61.34s, halting the buy-side sequence. Balance developed, 60.96s-61.20s, early in Friday’s auction before selling interest emerged, 61s, early in Friday’s NY auction. Price discovery lower developed to 60.02s ahead of Friday’s close, settling at 60.44s.

WTI Weekly 2Dec19

This week’s primary expectation was for price discovery higher barring failure of 58.80s as support. This probability path did play out as price discovery higher developed to 61.40s before structural excess formed, halting the buy-side sequence. This week’s rotation (169 ticks) traded below the average weekly range expectancy (398 ticks).

Looking ahead, response to this week’s demand cluster, 60.25s-59.95s, will be key. Sell excess developed in Thursday’s auction, signaling a potential halting of the buy-side sequence. Buy-side failure to drive price higher from this key cluster will target key demand clusters below, 58.75s-58.10s/55.50s-55s, respectively. Alternatively, sell-side failure to drive price lower from this key demand will target key supply clusters overhead, 60.95s-61.35s/61.60s-62.60s, respectively. Near-term bias shifts sell-side, barring failure of 61.40s as resistance. The broader contextual question is what the next directional phase will bring following the current developing balance, 63.38s-50.52s. The larger context remains neutral between 63.38s-50.56s. Next week’s auction behavior is likely to be muted due to the Christmas holiday.

It is worth noting that market posture warranted caution on the buy-side near the April 2019 high, 66.60s, as Managed Money (MM) long posture peaked there. MM short posture then trended higher before reaching the near-term peak into late July where the current price low was formed. This week’s report shows MM net long posture (+272k contracts), the highest level since May 2019. MM long:short ratio, MM net long as % of open interest, and MM net long posture are all closer to levels seen at recent resistance areas as the market approached 61.50s this week. This development continues as WTI now trades within the typical seasonal low-price period (November-December). This divergence implies a broader neutral posture through the holiday season.

WTI COT Weekly 20Dec19Aggregate COT Weekly 20Dec19

The market structure, order flow, and leveraged capital posture provide the empirical evidence needed to observe where asymmetric opportunity resides.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.