Trading position (short-term; our opinion): Small (half of the regular size) short positions (with a stop-loss order at $61.13 and the initial downside target at $52) are justified from the risk/reward perspective.
On Thursday, the price of light crude increased 0.34% after the EIA weekly report showed a bigger-then-expected drop in crude oil inventories. Thanks to this move, the commodity approached the barrier of $60, but will we see a yearly closure above it?
Yesterday, the EIA weekly report showed that crude oil supplies fell by 4.609 million barrels in the week ended December 22, beating analysts’ forecasts. Despite this positive news, the report also showed that gasoline inventories increased by 0.591 million barrels and distillate stockpiles rose by 1.090 million barrels. Nevertheless, the biggest surprise of yesterday was a decline in U.S. oil production, which dropped to 9.754 million barrels per day from 9.789 million bpd. Thanks to these circumstances, the price of crude oil futures extended gains and hit a fresh 2017 peak earlier today.
What does it mean for the commodity? In our opinion, if crude oil futures remain at current levels (at the moment of writing these words they are trading at $60.13), it’s very likely that black gold will follow them after the market’s open and we’ll see a fresh 2017 high (around $60.40-$60.66).
Nevertheless, even if we see such price action, we should keep in mind that crude oil remains under the key resistance zone created by 2015 peaks and reinforced by the 50-month moving average and the 38.2% Fibonacci retracement based on the entire 2011-2016 downward move. Additionally, there are similarities to what we saw in the previous years, which together with the technical picture of the commodity suggest that the space for gains is limited and a bigger move to the downside is just around the corner.
Therefore, the comments that we made on Thursday remain up-to-date also today and if you haven’t had the chance to read our yesterday’s alert, we encourage you to do so today - it’s up-to-date:
Will Crude Oil Finish 2017 above $60?
As always, we’ll keep you - our subscribers - informed should anything change.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager
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