Since my last post on the WTI futures contract, the commodity has continued to oscillate in a relatively narrow range, with the upper level of price resistance now defined by the green dotted line at the $97.50 per barrel price point. Today’s price action has been particularly interesting, given the market’s sharp sell off following mixed messages from Ben Bernanke. Indeed, today’s hammer candle is an exact facsimile of that created on the 15th May and the two candles could almost be superimposed.
What was significant about the recovery from the first candle was that the move higher from $94.50 up to $97.50, was associated with falling volume, a classic sign of a weak price move. After all, classic volume price analysis tells us that a genuine price rise should be accompanied by rising volume. It was no surprise, therefore, to see the markets duly roll over from the $97.50 price level. The move lower was accompanied with rising volume, a classic sign of strength. The question now is whether we are likely to see a recovery in oil prices, given the formation of today’s “hammer candle” which suggests that the price of oil may well move back higher once again to test the $97.50 price point once more.
Yesterday’s crude oil inventory provided little in the way of a surprise coming in at -0.3m, just shy of the forecast draw of -0.4m.
Moving to the volume at price histogram, the current congestion phase is clearly defined and should we see further strength in the oil price, supported by a sell off in the US dollar, which is having its own battle to move higher, then this will provide a strong platform for any move through, and on towards $100, in due course.
By Anna Coulling