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WTI prints $40bls and completes a 50% mean reversion of daily sell-off

  • WTI bulls take on the $40 handle in a string upside correction.
  • Bears will be lurking overhead, seeking opportunities to catch the next wave to the downside.

West Texas Intermediate has run up a strong correction of the broader bearish trends on the monthly and weekly charts.

At the time of writing, a barrel of oil is trading at $39.98, higher by 4.14% having rallied from a low of $38.38 to print a fresh daily high of $40.20. 

Risk appetite has improved and, in addition, the latest API data showed a heavy decline in oil inventories.

Additionally, Hurricane Sally’s expected landfall on the US Gulf Coast had led to more than a quarter of US offshore oil and gas production shuttering as well as key exporting ports.

The storm’s trajectory had shifted east toward western Alabama, at least sparing some Gulf Coast refineries from high winds.

The unpredictability about oil production in the Gulf was bullish for oil prices.

Meanwhile, headlines have also suggested OPEC+ compliance was above 100% for August.

The compliance data in particular bodes well heading into the JMMC meeting, as traders were concerned that the group was losing their grasp on the historic production curtailment deal,

analysts at TD Securities explained. 

The analysts at TDS argued, however, that demand-side expectations remain a key worry:

Notwithstanding the marginal improvements, demand-side expectations remain a key worry moving forward, as the IEA and OPEC have both trimmed their forecasts for the rest of the year.

For the moment, considering Saudi Arabia's significant influence in the region, and the recently negative tone on demand by OPEC and other forecasting agencies, we suspect that the JMMC will mitigate downside risks, particularly as further weakness may also see an increase in voluntary OPEC+ cuts.

WTI levels

The price action has been one more or less one way since the start of the week, taking out the 38.2% Fibonacci of the daily bearish impulse and prior support at $39.

The bulls will now need to overcome structure at the 3rd Sep lows overhead at $40.20/80 which meets a 61.8% Fib of the same daily bearish impulse.

Failures here will give rise to the downside prospects in what would be expected to be the start of a new wave to the downside towards weekly and monthly demand zones in the $34 area.

Author

Ross J Burland

Ross J Burland, born in England, UK, is a sportsman at heart. He played Rugby and Judo for his county, Kent and the South East of England Rugby team.

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