WTI crude oil prices (USOIL) turned higher from support in the past week and have erased a bulk of losses from the prior week. A weekly close near highs has set a bullish tone, however, important resistance overhead hints that oil prices will face choppy trading conditions in the week ahead.
Oil prices held above $44.19 support and pushed back towards prior highs for the month in the past week. Wednesday’s Energy Information Administration (EIA) report led to some bearish pressure but following a turn on Thursday, a recovery wiped the losses as a result of the report.
The EIA reported a draw of 7.56 million barrels versus an expected 2.85 million barrels. This follows a draw of 6.30 million barrels reported in the prior week. The significant draw was undermined by the American Petroleum Insititute’s (API) report on Tuesday as they reported a draw of 8.13 million barrels. Nevertheless, the decline in inventories seen over the past two weeks has restored confidence in oil bulls.
The latest COT report revealed a second consecutive weekly build in the NYMEX crude net long position. The net long was reported at 358,025 contracts in the week to July 11th, up from 341,047 contracts in the prior week. The rise in the net long is attributed mostly to a short covering as the gross short declined for a second consecutive week to 270,984 contracts from 292,755 contracts in the prior week.
A combination of a hold of important support and some momentum behind the recovery in the past week suggest further upside for oil prices. However, the new week will start out near important resistance. A horizontal level at $47.07 was critical support in the second half of March and had acted as resistance at the start of this month. The level will be the first major hurdle to the upside. Further resistance is seen from the upper line of a declining trend channel that has been in play since March, currently found near $48.20
The first level of support is found at $45.27 which was prior support in early June. Support at $44.19 is critical in the current recovery and is not likely to be tested in the week ahead. A break of the level would tend to shift the near-term bullish sentiment seen in the past week.