Originally published by AxiTrader
After a very solid close out day bounce Friday US crude oil futures pulled back a little overnight. The price of Nymex light crude's front contract fell 0.85% to $52.77.
That fall came despite a weaker US dollar that supported base metals and gold with the selling and disquiet in the market appearing to come from the big jump in US oil rigs last week.
Baker Hughes numbers, released Friday, showed that the rig count climbed by 29 to 551 - the biggest one-week increase since the first half of 2013. This increase continues the trend, which has been occurring since crude oil prices started to recover making US shale oil more economic.
Naturally the increase in US rigs and the production that will flow from them has caught the attention of traders. Yet the Saudis, and OPEC itself, have continued to say over the past week that the market is moving into balance and the increased US production can easily be absorbed.
Just last night Reuters reported that the Iraqi oil minister made this point and said oil prices were heading toward $60 and perhaps into a $60-65 range.
No doubt that is a target the Iraqis, and perhaps OPEC and non-OPEC producers alike may have set themselves over the medium to longer term.
But for the moment even though last night's low again respected the trendline support in US oil terms the risk is high of a liquidation due to the huge long position the market is carrying.
That's best evidenced by the latest CFTC data which shows that the net long for those accounts who identify as "speculators" hit its highest level in more than 5 years last week.
That's important because positioning conveys powerful information about the ability of a market to rise and fall.
In the case of oil, a net long position for the market of this scale and magnitude suggests the ability for more buyers to enter the market and take prices higher is limited.
Indeed it is worth noting that the last time crude oil positioning was this long was just before the inextricable collapse from above 100 in 2014 to last years low below $30.
Naturally things are different now because OPEC has instituted a production cut in order to rebalance the market and - as the Iraqi oil minister said - drive prices higher. But there is still a near-term risk of a liquidation of positions should the price not be able to break recent highs above $55 anytime soon.
Looking at the technicals it is clear that this current trendline remains an important support for the oil market as you can see in the AxiTrader US Oil CFD.
But should this line break - call it $51.85/$52.00 - a move to support at the recent low of $50.50/60 would be called into play. And of course a move to $50.23 would be a simple garden variety 38.2% retracement of the rally mapped out by this trendline.
On my read only a break of the recent high at $55.20/30 would renate this outlook which calls for a pullback.
Have a great day's trading.