The daily chart for the WTI September contract makes interesting reading at the moment as we head into the summer doldrums and for the time being we look set for a further extended congestion phase to develop with the VPOC, the yellow dashed line firmly anchored at $72 per barrel, a level likely to remain in focus for the next few weeks.
To date, the price action in August has followed a similar pattern to that of July, which saw the price of oil fall to just below $66 per barrel before recovering and return to the $74 per barrel area by the end of the month, and as August got underway, this pattern of price action was repeated. Note the well-developed price-based support at $65 per barrel and $66 per barrel denoted by the red and blue dashed lines of the accumulation and distribution indicator. On both occasions, this provided the requisite platform for a bounce higher.
In the recent move lower of 9th August, note the depth of the wick to the lower body of the candle which was accompanied with good volume confirming buyers stepping back in at this point. This facet of buying support was further confirmed two days later with the strong recovery intraday on the 11th August with a deep lower wick and once again accompanied with good volume. Given these signals, the price of oil is likely to continue higher and back to the VPOC in due course where we can expect further congestion to follow. In terms of the weekly oil inventories, while these fell well short of the forecast of -0.8m bbls draw, instead of coming in at 0.4m bbls. draw this figure against the backdrop of a significant build last time around thereby helping to give the price of oil a little boost in the right direction.
By Anna Coulling
Charts from NinjaTrader and indicators from Quantum Trading
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