As we forecasted in our June 21st article, few days before the UK referendum, “Shall the UK decided to exit the EU, we expect a fall in price by at least 15%,…” and here we are as price plummet from the high of $49.80 level to $38.80 level – a little shy of the 61.8% of Fibonacci retracement from the low of Feb 11h to the high of June 8th - over a period of six weeks.
Last week price closed above $41/barrel forming a bullish hammer that indicates potential reversal. Nevertheless looking at price structure, we believe the $43 handle will cap further gains before resuming downtrend to test the 61.8% of Fibonacci retracement from the low of Feb 11h to the high of June 8th – around $35.50/barrel.
Recent oil reports from IEA and API all point to balanced crude productions and reduced inventory that may help to buoy price to stability. However, according to IEA, products stocks are very high and may work against price stability despite US oil productions has dropped to 8.51 million barrel/day – almost 1 million barrel/day from the peak. API last week reported a drop of 1.3 million barrel in inventory.
Looking at the recent CoT reports, crude futures are still in net long though reduced by 6,107 contracts to +267.2K contracts – a decline that has persisted for the last 6 straight weeks.
A further scrutiny on the open interests revealed that contracts for Sept, Dec, Oct, Nov 2016 delivery received highest demand followed by Dec 2017; which mean market expects price to stabilize sometime late this year or early next year.
HalalTraders is on a risk free trade post Brexit and had scaled in another short around $42.50 with stop on close at $43 targeting $35.50 level.
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