WTI bulls stopped in their tracks on $58 handle

• WTI lower on the day, giving back Sino/US trade-related gains.
• WTI price capped around a technical confluence and psychological resistance area.  

The price of a barrel of oil at the start of the week has declined.  West Texas Intermediate, (WTI),  is currently trading -1.86% having travelled from a high of $58.06 to a low of $56.53.  Despite  renewed optimism  for a trade deal between the US and China, supply-side factors are weighing  on the price of oil which  are stalling the bull’s advances. Casting minds back to last week’s Energy Information Administration inventory data, we saw a “moderately stronger than expected build” for U.S. crude stocks. Preliminary production figures were also showing an unwelcomed assent which marked a new all-time high at 12.8 million barrels per day.

However, the impact of such data is unlikely to dwarf  the prospects of a trade deal between the US and China, especially  in the  anticipation of the December OPEC meeting where the markets will expect there to be a bias towards production cuts  just as observers expect a slowdown in the shale patch which should contribute to a lift in the demand outlook, especially if trade Sino/US negotiations go smoothly.  

A second-wind for the recent rally

“We expect  CTAs  to deliver a second-wind for the recent rally. Signals of strengthening upside momentum are expected to prompt algorithmic trend followers to accumulate length across the complex, with Brent, gasoline and heating oil all trading north of key thresholds necessary to see additional  CTA  length accumulated. While the bar remains low for this round of long accumulation to be cut short, this buying program could help prices overshoot to the upside “” we continue to expect a meaningful surplus in 2020H1,”

analysts at TD Securities explained.  

WTI levels

WTI has rallied from the 50% Fibonacci retracement level of the 2016-2018 high range for the fourth time YTD located around 51.30. Bulls have subsequently reached back to a 38.2% Fibo level of the same range around 57.40 where there is a confluence of the 200-Day moving average which hardens and reinforces the 58 handle’s resistance and psychological significance. A break of the 21-DMA and then the 50-DMA opens prospects of a long squeeze below the September formed ascending channel’s support line which guards a run back to the mentioned 50% Fibo target.