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Crude is Heating Up, but be Cautious of a Cooldown

When referring to crude oil these days, its best to discuss it in terms of the front month futures contract rather than a CFD or an ETF.  This gives a truer price of oil (it’s basically the spot market).  The current front month contract is June, which is set to expire on May 19th.  Although the May contract went as low as -$40 before expiration, the June contract only went as low as +$6.50.  WTI Crude Futures closed up $4.00 today.  In the not so recent past, this would have seemed like a good day, but not necessarily a great day.  Today, $4 is a great day!  $4 is +20%!  OPEC+ supply production kicked in on May 1st.  Optimism is flowing as US states and countries around the world reduce restrictions.  German ministers even have agreed to reopen pubs and restaurants in May!  Oil traders are excited!

Below is a daily chart of crude oil.  On January 8th, crude put in a high of $65.65.  The low on April 20th was -$40.32.  Today’s high was $24.85, just 20 cents away from the 61.8% Fibonacci retracement from that time period. 

Source: Tradingview, NYMEX, City Index

Is price moving to far to fast?  On a 240-minute timeframe the RSI is overbought, with a reading of 75.  Price has formed an ascending wedge off the $10 level and is currently testing the top of the upper trendline of the wedge.  If price pulls back from resistance, first support is near $22.50, which is horizontal support and the bottom trendline of the wedge.  Below that is horizontal support near $20.35 and then horizontal support again and the 38.2% retracement from the April 21st lows (in June contract) to todays highs.  Resistance is at the upper trendline of the ascending wedge and the 61.8% retracement (on the daily) near $25.00.  Above there price can move another $4 to $29.00 very quickly.

Source: Tradingview, NYMEX, City Index

Regardless of whether the coronavirus in contained, towns, states, and countries are slowly beginning to open again.  Crude Oil is excited about it! The June futures contract is the one to watch for “true” oil price discovery.  Although it has been moving higher the past few days, any headlines of non-compliance by OPEC+ or additional slowdowns because of the coronavirus will tank it. 


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