May West Texas Intermediate crude oil futures fell to their lowest level since November 29 on Monday, dragged lower by another increase in the number of U.S. rigs, and despite OPEC efforts to curtail output, trim the global supply and stabilize prices.
Contributing to the early setback was another increase in the number of producing oil rigs. On Friday, energy services firm Baker Hughes, Inc. said U.S. drillers added oil rigs for an eighth week in a row to the most since September 2015, extending a ten-month recovery. The report said that drillers added eight oil rigs in the week to March 10, bringing the total count up to 617, versus 386 rigs a year ago.
In other news, according to the U.S. Commodity Futures Trading Commission (CFTC), hedge fund and other commodity money managers reduced their net long U.S. crude futures and options positions in the week to March 7. This was no surprise because at the start of trading last week, they were probably still sitting on near record high positions.
The simple way to look at things this week is to say that prices will continue to fall if the hedge funds continue to trim positions.
The wildcard news that could trigger a powerful short-covering rally is renewed talk from OPEC of extending its program to reduce inventory.
The main trend is down according to the daily swing chart. However, today’s session begins with the market down 14 sessions from the most recent top, putting it in the window of time for a potentially bullish closing price reversal top.
Earlier in the session, sellers took out the November 29 main bottom at $47.90, reaffirming the downtrend. If the selling continues through this bottom then the next target becomes the November 14 main bottom at $45.78. Forecast
Based on the current price at $48.68 and the earlier price action, the direction of the crude oil market the rest of the session is likely to be determined by trader reaction to the pair of angles at $48.32 and $48.28.
Holding $48.28 and sustaining a move over $48.32 will indicate the return of buyers. If the buying increases on the move then this could generate enough upside momentum to challenge the next target at $50.26.
Taking out $48.28 with conviction could trigger another acceleration to the downside with the next major target the main bottom at $45.78.
Simply stated, despite the early weakness, an intraday short-covering rally could develop on a sustained move over $48.32 and the selling pressure could increase on a sustained move under $48.28.