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Crude Oil Prices Seem Directionless: Spinning Top Pattern

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Spinning top pattern

West Texas Intermediate (WTI) crude oil futures for June delivery showed the emergence of the spinning top pattern on May 8, 2015. Recently, improving demand from China has been driving the crude oil market. In contrast, peak output from Russia and OPEC (Organization of the Petroleum Exporting Countries) is driving the oil lower.

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Key pivots

The current uptrend momentum could drive WTI oil prices to the key resistance of $66 per barrel. Oil prices tested this level in May 2009. Slowing US output, declining inventories, and the improving demand outlook could support oil prices.

In contrast, the strong dollar and peak output from OPEC will push oil prices lower. As a result, important support is seen at $55 per barrel. The support is formed from the lows of April 21 and 22, 2015.

The spinning top is a candlestick pattern. The pattern signals indecision in the market. When the pattern is formed in an uptrend, it suggests that bulls are losing interest and prices could reverse. The RSI (relative strength index) is a technical indicator. It’s in overbought territory. Prices tend to fall from these levels. The WTI crude oil futures contract volume for June and July is above the five and ten-day average volume.

Higher crude oil prices benefit ETFs like the VelocityShares 3X Long Crude ETN (UWTI). In contrast, lower oil prices benefit ETFs like the ProShares Ultrashort Bloomberg Crude Oil (SCO).

The increase in oil prices is also positive for crude oil producers like Gulfport Energy (GPOR), Bonanza Creek Energy (BCEI), and RSP Permian (RSPP). They account for 4.75% of the SPDR Oil and Gas ETF (XOP). These upstream players have a crude oil production mix that’s more than 46% of their total production.

For the latest updates, visit Market Realist’s Crude Oil ETFs page.

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