Crude Oil Surges

WTI Crude Oil rallied over 14% today to close at $62.88 per barrel. This marks the largest single-day percentage gain for the commodity since June of 1998.

On Friday we ran a Twitter poll asking which level WTI Crude Oil will hit first, $50 or $60.

While 54% of respondents said $60, I don’t think many were anticipating price would scream to that level the very next trading session.

WTI Crude Oil futures closed out last week at $54.89 per barrel. Over the weekend, some of Saudi Arabia’s most important Oil fields were attacked, impacting about 50% of the country’s Oil output. When futures opened for trading on Sunday night, the price of WTI Crude jumped over 10%, one of the biggest moves for the commodity in over two decades. Prices rallied as much as 15% to a high of $63.38 before President Trump announced he would authorize the release of Oil from the Strategic Petroleum Reserve in an attempt to stabilize supply concerns.

So what does this mean for the price of Oil going forward?

Willie Delwiche of R.W. Baird shared the chart below. He notes that today’s massive rally helped Crude bust out of a year-long downtrend. However, it’s still below the price it was trading at a year ago.

Another Technician, Michael Kahn, pointed to a similar downtrend breakout in the popular Crude Oil ETF, $USO.

Before this weekend, Crude Oil had been coiling up for almost a year as seen by the series of lower highs and higher lows. Below is an excellent thread from Yuriy Matso that illustrates the coiling and subsequent breakout.

Now that the downtrend line has been invalidated, it’s reasonable to expect higher prices. Below is a weekly chart of WTI Crude Oil futures going back to 2011. If price can get above the May 2019 high (around $65), I don’t think $75 per barrel is out of the question. You can see that the $75 level has significant price memory. It acted as support several times before it broke down in 2014. It then served as resistance in 2018 when the level was tested from below.

In a note from Frank Cappelleri of Instinet, he comments on the importance of the May 2019 highs. Frank wrote: "Crude’s gap last evening got very close to the May high…This remains a key resistance zone until broken."

JC Parets of All Star Charts gave us perhaps the best lesson to take away from this weekend's events.

We’ll continue to keep an eye on it and report back with any significant developments. As always, feel free to contact us with any questions.