Originally published by AxiTrader
The rally in crude oil has stalled over the past couple of weeks amid signs that all the good news about the Saudi/OPEC/non-OPEC deal might already be baked into the cake.
Certainly that is the take you get with even just the most cursory look at the CFTC commitment of trade data for the US light sweet Nymex crude oil futures. While we'll see a fresh update on positioning tonight, recent data shows that net long positions, amid those traders who identify as speculators, have been sitting up near a five-year high recently.
That in itself is a red flag that the market might be vulnerable for a pullback because it suggests everyone who wants to be long already is. The corollary of that is that available limits to take prices even higher with more buy could be scarce right now.
That's perhaps why comments from Saudi oil minister al-Falih this week that he is not worried about US production and there was no need for an extension to the production cuts were drowned out by OPEC's own monthly report noting US shale production was likely to rise.
When traders focus on the more bearish news it tells you something about market psychology and positioning.
So, whatever the market's, or my, view on the overall outlook for oil in the year ahead the reality is that Crude is looking vulnerable to a pullback.
Nowhere is that more obvious than with a simple look at the WTI chart.
Sitting on the uptrend from the start of the OPEC deal rally back in November our WTI CFD is vulnerable to a fall should this trendline break and WTI trade below the $51.50/70 region.
Naturally, it is worth noting my McKenna mantra which is that I always respect levels and trendlines unless or until they break. But if it does the chances of a run to the 38.2% retracement level of the November-December rally rise.
That's particularly the case given a heavily long market and the risk of position squaring.
The 38.2% retracement level sits at $50.23 and if that broke $48.70 is the 50% retracement level of support. Topside a move above $53.50/70 would be needed to improve the outlook in the short term.
Have a great day's trading.