US oil prices fell ahead of the preliminary midnight deadline for some kind of declaration to be reached with Iran and Western diplomats. If a tentative deal is reached, expectations are for further pressure on oil because an agreement would mean increased crude exports. The final deadline for a complete agreement is July 1st. Crude prices dropped 2.05% to $47.68 ahead of the start of the New York session.
Oil may have provided a key bottom with the March 17th low at $42.41. While the supply glut argument could support prices to fall another $10, we may only see limited downside on this fresh round of selling. Major support may come from the $37-$40 region.
Price action on the oil daily chart shows that price remains under pressure after trading towards the upper boundary of the 2015 range. If we do see any rebound with prices, immediate resistance will come from the 50-day SMA which is trading at the $48.72 level. Major resistance will come from the 2015 high at $54.24.
Over the next 24 hours, we may see downward momentum prevail and fall towards the January low region of $43.58. Critical support will remain the psychological $40 handle.
If we see a major slide over the next couple weeks, we may look for prices to bottom out and form a bullish butterfly pattern around the $37.00 handle.
The trade: Sell oil at $47.68, with a stop loss at 48.08 and take profit at 46.48. The risk/reward ratio is 1:2
Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading