Since making a low in 2016, crude oil has attempted a corrective rally within the downtrend. The rally into late last year had added roughly $50 per barrel from the low of $26.05 in the spring of 2016.
After achieving the swing high of $76.90, crude violently dropped back to the shelf near $42. This drop has provided us with information about what price is likely to do as well as the health of the pullback in the crude oil market.
Price had a high probability of achieving the median line of the controlling fork, which it did on the push lower. The concern for those expecting higher crude prices is how price is pulling through the lower parallel of the larger swing. If price was healthy and was going to achieve the median line around $115 per barrel, it likely would not have broken below the lower parallel of the pullback fork. Instead, price is suggesting the market is weak and that the downtrend is very much intact.
What appears likely is that crude oil is entering a range with the $40 area being the shelf and the mid to upper 70s being the top of the range. The weakness and structure of the crude oil market suggest that sellers will once again attempt new lows below $26 per barrel in the years to come. Until a major pivot can be made, from which the next bull market in crude will begin, the rallies in crude are likely to get sold as sellers attempt to make new lows.
**Past performance is not necessarily indicative of future results. The information presented is the opinion of the writer. There is an inherent risk of loss associated with trading futures and options contracts even when used for hedging purposes. Futures trading is not suitable for all investors.**