Learn to Trade Commodity Overview 27th May
Focus on Oil
Over the last five days WTI Oil futures have consolidated around the lows, mimicking the recent sideways equity trade. Yesterday we witnessed a large build in the DOE Oil number shrugged off hinting at underlying strength. We expect the volatility seen in recent weeks to continue as great uncertainty remains in the broad macro picture.
Thoughts from the trading floor
From a technical perspective oil looks sightly more balanced than a week ago although prices are still under extreme pressure. In the short term the daily swing high at $72.52 will prove important, a close above here in the next few days may open the door for a strong bounce. Beyond here resistance lies around $75 with the medium term target for bulls likely being around $78.50. Key support lies on yearly lows at $64.24, beyond here support can be found at $62.70. Overall we are at a pivotal point in time, a decisive break in either direction from this current consolidation could easily result in another aggressive move.
Yesterday we saw the DOE release their latest data and it showed a higher than expected oil inventory in the US, 2460K opposed to analysts expectation of 250k. The gasoline number fell closer to expectations, -203k against the expected 300k. Despite the large discrepancy in the number the markets showed little reaction preferring to focus on the wider fundamentals at a time of great macro uncertainty.
Yesterday an OPEC member announced that the “cartel” was unhappy with the recent dip in oil prices as well as the current volatility. He also hinted that OPEC was ready to act on supply levels in order to stabilize the price. Such moves will always have a baring on prices although broader macro moves will likely overshadow any changes in supply.
Bull View
Bulls will see the recent consolidation as a base formation and will be keen to break above $72.52 in the next few days. If this can be achieved a strong bounce off the recent lows may be possible.
Bear View
Bears will be looking for further equity weakness to act as the catalyst for another leg lower in the oil. If this is to be the case further worrying developments in the Euro zone may be what's required.
Futex View
We believe oil markets may perform well over the next few days, however this may well provide a good selling opportunity as the macro picture still remains uncertain. Only if we see considerable Euro strength would we switch tact and look to buy.
Tags: Commodity, learn to trade, Oil
