March West Texas Intermediate Crude Oil is under pressure early Monday on concerns over growing U.S. production. The market is down a little over a dollar, but downside momentum appears to be building despite efforts by OPEC to limit production.
Last week, traders expressed optimism over OPEC’s plan to cut production, trim the surplus and stabilize prices, but even these traders are starting to feel the heat from the rising U.S. oil rig count. On Friday, oil services giant Baker Hughes announced the 10th consecutive weekly increase in the number of active wells in the U.S.
This news is raising concerns that U.S. production is increasing at a pace to offset the efforts by OPEC and non-OPEC members to cut output.
Traders should also be watching the output from Iraq. It’s going to take 100% compliance for the program to work. Because of this, bearish investors are putting their money on Iraq to be the first OPEC member to cheat or be accused of cheating on its pledge to cut production.
The main trend is up according to the daily swing chart. However, momentum has been shifting to the downside since last Tuesday’s dramatic reversal top. A trade through $53.08 will confirm the reversal top, but a move through $52.96 will turn the main trend to down. This could create enough downside momentum to challenge the two main bottoms at $52.10 and $51.80.
The short-term range is $56.18 to $53.08. Its retracement zone at $54.63 to $55.00 is resistance. It stopped two rallies last week.
The intermediate range is $56.24 to $52.10. Its 50% level or pivot comes in at $54.17. Crossing to the weak side of this pivot earlier today is a sign of weakness.
The main range is $46.62 to $56.24. If there is a steep sell-off then its retracement zone at $51.43 to $50.29 will become the primary downside target.
Based on the current price at $53.82, the direction of crude oil today is likely to be determined by trader reaction to the intermediate pivot at $54.17.
A sustained move under $54.17 will indicate the presence of sellers. This could drive the market into a long-term uptrending angle at $53.37, Followed by main bottoms at $53.08, $52.96 $52.10 and $51.80. This is followed by the major 50% level at $51.43.
A sustained move over $54.17 will signal the return of buyers. This could lead to a labored rally into $54.63, $55.00 and $55.18.