Resistance: $77 per barrel – 61.8% retracement of 2014/2016 pricerange
Spot:$73.21/bbl
Support:$67.56– 61.8% retracement of June 18-29 breakout to new 3yr highs
On Friday, the Baker Hughes data showed that US rig counts are reversing from their multi-month trend as rig counts decline.The drop in US active rigs may mean that output in the USis capped and that any relief to the consumer downstream from higher prices maycome to need to come from OPEC producers.
Another source of comfort may come from refiners beginning to slow down their orders as profit margins are getting squeezed as per the Gasoline Crack spread, which is a proxy for refiners margins.
One reason for the decline in the crack spread, whichis derived from converting the NYMEX gasoline contract to USD per barrel minus the crude oil contract, fell by more than 30% in June, the most in over a decade per Bloomberg. Additionally, this decline canbe seen through the lens of WTI-Brent spread, which narrowed aggressively as North American production bottlenecks aligned with signs of an increase in production from OPEC and key allies like Russia.
Data source: Bloomberg
The chart above shows the calendar spread between WTI-Brent in orange, which rebounded sharply in June alongside the gasoline crack spread, which fell aggressively over the last month. If refiners, the main upstream buyer of crude pull back due tomargins, then we could see supply build.
However, we can look to technical analysis to get a better picture as to whether the fundamental story favors further upside or a potential pause on this move that has seen WTI crude higher by 22.5% year-to-date.
The chart above should give hope to the bulls. In short, it shows that despite a reduction of long Brent futures positions by institutions by nearly 40%, the front-month contract has resumed its gains higher (blue area.)
Should the bulls re-engage their bullish exposure to the same level or higher as in April, the price could make a move toward the 61.8% retracement of the 2014-2016 range at $77/bbl.
Chart Source: Pro Real Time with IG UK Price Feed. Created by Tyler Yell, CMT
The bullish picture is heating up on the charts and per positioning data. The weekly CFTC data on Friday showed the net-long position was the most bullish in seven weeks with the long-only total the highest in five weeks.
The boost in net bullish bets is facing an overbought reading on RSI(5), but bullish factorsremain to support the price advance since June 18. In addition to falling US rig counts and OPEC production due to involuntary outages, traders can look to the Ichimoku cloud and 61.8% retracement of the June 18-29 move at $67.53 as key support in the move higher.
The broad target sits at $77/bbl, which optionsmarkets are showing a bullish call skew as possible. $77/bbl aligns with the 61.8% retracement of the 2014-2016 price range.
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---Written by Tyler Yell, CMT
Tyler Yell is a Chartered Market Technician. Tyler provides Technical analysis that is powered by fundamental factors onkey markets as well as trading educational resources. Read more of Tyler’s Technical reportsvia his bio page.
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