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  • WTI spikes on a spot basis despite storage levels but futures end lowest since 2002.  
  • Contangos remain extremely steep, speculative bears could be getting a discount here and/or higher.
  • Technically, there is room to the 21 handle and a 23.6% Fib retracement. 

West Texas Intermediate crude oil is making a tough time of a correction following the consecutive bearish closing days since the weekend’s OPEC+ outcome. In fact, the US benchmark oil futures have settled this Wednesday at their lowest since early 2002. At the time of writing, WTI spot trades at $20.15, -2.15% having travelled form a high of $20.90 to a low of $19.16.

Stockpiles, pertaining to the demand shock and the economic COVID-19 induced crisis, are mounting. Data released earlier in the day by the Energy Information Administration reported a 19.2 million-barrel weekly rise in US crude supplies. Consequently, May West Texas Intermediate oil dropped  24 cents, or 1.2%, to settle at $19.87 a barrel on the New York Mercantile Exchange.

However, spot market forces didn’t manage to send oil lower and consequently, bulls have stepped in and pushed the price higher as storage facilities are seen to be maxed out. While OPEC+ have agreed to cut some 9.7m bpd through May-June, 8m bpd from July-Dec, and 6m bpd from Jan 2021-April 2022, the longer the lockdowns, the longer crude will remain on the shelf which means extraction will have to slow down until demand picks up again.

WTI could be a fade on rallies

This likely means a bottom for oil until shelves are starting to clear again. Moreover, as the lockdowns lesson, there will be a pick up in consumption of energy, but that will not necessarily lead to a rise in prices until stocks are depleted and economies really start to fire up again. As analysts at TD Securities argued, contangos also remain extremely steep — “this translates to a high carry associated with speculative length. CTAs remain well-positioned for further downside, and a buying program is unlikely to ensue.”

WTI levels

The 23.6% Fibonacci target comes in at $21.31 and meets a resistance structure. $22.60 meets a 38.2% Fib and 24.80s meets a 61.8% Fib. A break of the 19 handle reveals 16.40s and the Nov 2001 lows.