There are signs that the United States has already entered a recession, which is like kryptonite for the oil markets.
The WTI Crude Oil market had a relatively positive Independence Day, but it should be noted that volume was a bit thin as most trading was electronic and off hours. That being said, the market has reached the 50-day EMA, and it looks as if it is going to try to make a move higher. If we can break above the high from last week, it’s very possible this market could go to the $120 level.
On the other side of the equation, there is a massive uptrend line sitting just below that is expected. If we were to break down below that level, the market would almost certainly go down to the $100 level, which then would threaten the 200-day EMA. Breaking down below there is a technical trend change, and the market would almost certainly continue to fall in that scenario.
As things stand right now, we have a bit of a fight on our hands. The commodity markets have been falling rather hard for multiple reasons, not the least of which is that global growth is expected to slow down quite significantly. In fact, there are signs that the United States has already entered a recession, which is like kryptonite for the oil markets. That will be especially true with this grade of oil, as it is the main one in the United States.
On the other side of the argument, there has been a serious lack of production for some time, and now the Strategic Petroleum Reserve in the United States is down to about 25 days worth of supply. In other words, the US government might be a buyer when nobody else is, keeping the price somewhat elevated. Either way, the longer-term outlook for crude oil based upon the future spread is still positive, so that might be something worth keeping an eye on.
However, price will lead the way, so if that $100 level holds, crude oil will fall, despite some of the other issues involved. On a break above the $115 level, I anticipate that the market will try to go to the $120 level, possibly even higher than that. On that move, we’re starting to talk about breaking out to fresh, new highs, which is still a possibility to a number of factors, not the least of which is that Russia still faces sanctions.