U.S. West Texas Intermediate crude oil futures edged lower on Friday as investors weighed the jump in COVID-19 cases against a probability of a swift recovery in the U.S. economy and a subsequent increase in demand. While lower demand worries have been a concern for months, supply jumped into the picture late last week after OPEC and its allies agreed to taper their agreed upon production cuts. That’s just a fancy way of saying output increases are coming.
On Friday, September WTI crude oil futures settled at $40.75, down $0.18 or -0.44%.
In other news, U.S. energy firms cut the number of oil and natural gas rigs operating to a record low for an 11th week in a row, according to data from energy services firm Baker Hughes Co.
Daily Swing Chart Technical Analysis
Main Trend Technical Analysis
The main trend is up according to the daily swing chart. A trade through $41.46 will signal a resumption of the uptrend. This is followed by the next main top at $41.74 and the top of a gap formed in March at $42.49.
A trade through $38.77 will change the main trend to down for the first time in months. This could lead to a quick test of the next main bottom at $37.32, which is a potential trigger point for an acceleration into another main bottom at $35.01.
Retracement Level Analysis
The longer-term range is $61.44 to $21.99. Its retracement zone at $41.72 to $46.37 is longer-term resistance. For over a month, September WTI crude oil has been running into resistance at the 50% level at $41.72. Given the time spent just under this level, we feel this price may be the trigger point for the start of another leg higher. Although buyers will still have to overcome the main top at $41.74 and overtake the top of the gap at $42.49.
The first minor range is $41.74 to $37.32. Its 50% level at $39.53 is the first downside target. Since the main trend is up, we could see a technical bounce on the first test.
The short-term range is $35.01 to $41.74. If the trend changes to down on the move through $38.77 then look for the selling to possibly extend into its retracement zone at $38.38 to $37.58. Counter-trend buyers could step in on a test of this zone.
There is no doubt that $41.72 to $42.49 is solid resistance, but the upper level is also a possible trigger point for an acceleration to the upside. If this level is overcome with conviction then we could see an eventual rally into the major Fibonacci level at $46.37.
As long as $41.72 remain resistance, there will always be the possibility of a pullback into a series of support levels staggered at $39.53, $38.77, $38.38, $37.58 and $37.32. Yes, it’s a lot of levels but due to the series of price swings over the past month, that’s the way the support has formed.
Essentially, the market is running out of time for a breakout over $42.49. Traders may grow tired of buying strength so they may try to play for a pullback into a value area. The best near-term value area is $38.38 to $37.58.