Daily Client Note
Crude Oil (NYSE:WTI) Review
Path of least resistance is higher on WTI
US Oil Inventory numbers are likely to impact West Texas Intermediate (WTI) prices on Wednesday, and may set the tone for trade over the course of the next week. The expected number is -1.4m barrels being held as commercial inventory, and a big miss above or below that area is likely to create volatility. Price action continues the choppy and overlapping trading pattern that has found support, and is unable to break resistance, on WTI (98.90) trade.
The potential for new trade signals to form on today is totally dependent on Oil Inventory numbers at 10:30 ET. The reversal through support at 100.00 on WTI was highlighted recently, and has followed through to hit 98.00 support. The 100-day Simple Moving Average area at 99.50 has offered intra-day volatility and has added to the oil markets disjointed trading patterns.
Exchange Traded Fund:
The outlook for USO (39.00), the exchange traded fund (ETF) that tracks oil momentum, is for consolidation above 37.50, and to struggle to easily break 41.00 resistance. The ETF is likely to continue to lag behind the main moves seen in WTI futures contract trade, as major oil price action is taking place while the US session is closed.
Any existing USO positions should be closely monitored while recent price action is absorbed. USO may struggle to offer a fair reflection of the choppy 24-hour moves currently being seen in crude oil futures trade, and a weekly chart close may offer some clarity.
Alternate 24-Hour Trade:
Investors who do not want to wait for their regional cash market to open, or do not have 24-hour access to the market they have open positions in, are able to access the 24-hour currency market. There is potential to analyze and trade currencies in a high-volume market that is supported by the global inter-bank system.
Investors can trade currencies in-line with a rising global market, or trade ahead of a falling cash market open. Being able to use currencies offers the opportunity to be in a trade before the regional market opens.
Traders could trade the currency pair EUR/USD in-line with the potential seen in global crude oil movement. Buying the US dollar and selling the euro when WTI is dropping in value is a simple process of placing a sell order on EUR/USD, and then closing that same position in a similar way that equity trades would be managed.
If global market trade favors the selling of WTI below 98.50, and equity indices continue the recent selling, a potential trade signal will be issued on EUR/USD. Selling the EUR and buying the USD via this currency pair from 1.4580 draws in 1.4550 and 1.4510.
Oil Price Action:
Strong buying activity was seen at 97.00 on WTI in April and May. This potential price reversal and swing point area will now be closely monitored as a price point of strong support to buy the dips from. Market alerts will be sent to subscribers as sustainable momentum builds.
Main WTI support: 97.50. Main WTI resistance: 102.50.
ETF Price Action:
Strong buying activity was seen at 42.00 on USO in April and May. This potential price reversal swing point area has once again been shown as a massive area of resistance that is hard to break, and will continue to be closely monitored. Upside moves are muted, and a reversal lower on USO from 39.00 may be the path of least resistance if WTI breaks 98.50.
Main USO support: 36.50. Main USO resistance: 42.50.
WTI 100-day Simple Moving Average (NYSE:SMA) is at 99.70. WTI has a 36-month 75% correlation to S&P moves, and a 90% correlation to the euro (Eur/Usd) currency pair.
Daily trading range on WTI is $3.80, which is way above the historical norm and indicates increasing speculative interest, and increased volatility to come.
No trade signals will be issued ahead of US Oil Inventory numbers. Clients will be notified when price action confirms potential.
Sentiment towards WTI trade is mixed after recent tests of support held, but strong upside resistance was not able to be easily broken. Price action favors consolidation of recent moves in the near-term. Traders committing to oil trades at these levels need to reduce trade size, as volatile intra-day trading patterns are likely to continue for a while.
Daily Client Note