WTI Crude Oil continues to plow higher
During the trading session on Tuesday, we have seen more bullish pressure in the West Texas Intermediate crude oil markets again, as money flows into energy. With the fundamental backdrop, we have a lot of mixed messages, but currently it seems that there is one major part that traders are paying attention to.
OPEC doesn’t meet until June
Because OPEC doesn’t meet until June, the prospects of OPEC increasing output are almost none. With that in mind, supply will continue to tighten overall but likely what we are going to see is a general grind higher. Breaking above the $60 level was crucial, and more than likely driven by this fundamental factor. In June, we will have to see what happens in Vienna, but right now it doesn’t look as if many of the OPEC countries are considering increasing production, so that of course will put a bit of a floor underneath the crude oil markets overall.
The US dollar
The recent price appreciation of the crude oil market flies directly in the face of a strong US dollar, but we may be getting a bit of an overstretched market for the greenback, so that may continue to lift the oil market if the US dollar can’t lose value. Overall, the $60 level underneath should offer significant support, and therefore the US dollar weakening should only push this market much higher. If the US dollar breaks out even higher in strength, that could finally turn things back around, at least for this market. However, at this point we have not seen that happen.
One of the biggest problems for crude oil is that there seems to be slowing global growth. In fact, we are even starting to see significant negativity in places like the United States, but we are starting to see China turn around, so we have a major back-and-forth type of action when it comes to global growth. This of course could eventually cause an issue in the crude oil markets, but at this point we have not seen that. Quite frankly, it’s as if the market is simply ignoring the fact that demand could be faltering.
Beyond all of that, we are starting to get close to seeing a “golden cross.” This is when the 50 day EMA breaks above the top of the 200 day EMA, which is typically a longer-term “buy-and-hold” signal. If that happens, you can expect longer-term inflows of money from bigger funds, at least those who have not entered already. Quite frankly, the breaking of the $60 gap is reason enough for plenty of bullish pressure, so therefore it makes sense that we simply follow the trend overall. The Golden Cross would simply be another “nail in the coffin” of the bearish case.
The strategy going forward
For now, it appears that the strategy going forward is to simply buy dips as they occur on short-term charts. That has worked quite well for some time and there’s no reason to think it’s going to change. In fact, just below the $60 level we have the 200 day EMA which is going to obviously be significant support as well. To the upside, the $65 level will be the initial target.