Overproduction of gasoline helped weaken Nearby Crude Oil futures in July. Since the refineries are scheduled to shut down earlier than usual because of the slowdown in gasoline demand, crude oil prices are likely to continue to weaken in August.
There are some developing geopolitical events to watch in Libya, Iraq and Ukraine, but unless these events have a direct effect on crude oil supply, speculators are not likely to take any action. In the meantime, the traditional supply/demand fundamentals are contributing to hedge fund and money manager liquidation. This trend is likely to continue as long as the supply remains near historically high levels, or technical factors signal an oversold market.
Technically, monthly crude oil futures are trading inside a major triangle chart pattern. The size of this pattern suggests the market main remain inside this triangle for the long-term. The triangle is known as a non-trending pattern.
The main range is $119.70 to $78.06. The mid-point or pivot price of this range is $98.88. This price is controlling the short-term direction of the market. Crude oil has straddled this price several times over the past few months.
The short-term range is $87.26 to $107.50. The retracement zone created by this range is $97.38 to $94.99. Based on the price action in July, this zone is likely the first downside target in August. Traders should watch for a technical bounce inside this zone especially if the market becomes oversold.
This month, the market starts on the weakside of an uptrending angle at $101.26. This puts the market in a position to challenge the next uptrending angle at $94.26.
The triangle is bounded by $103.93 and $90.86. If the fundamentals turn bullish then look for traders to drive the market into $103.93. Taking this price out with conviction should trigger a volatile breakout to the upside.
Unless the supply/demand fundamentals change, look for a downside bias this month with a trade into $97.38 to $94.99 likely. If there is going to be a short-covering rally, it is likely to begin inside this zone.
