The excitement following the recent OPEC meeting is now a dim and distant memory and as the waters calm following the market’s knee-jerk reaction, it’s business as usual for crude oil which has recovered and picked up the threads of the longer-term bullish trend pretty much as expected. The shock move of the 19th of July was nothing more than a shakeout, much as we have seen in US equity markets over the last few weeks, and an opportunity for the big players to clean up as the fruit is shaken from the tree.

For oil, the shakeout was accompanied by the volatility trigger and hence we expected to see either congestion or a reversal, with the latter being the case and strong buying coming in on the following day. However, note how the volume falls away as we approach and reach the VPOC, the yellow dashed line which is anchored overhead at $72.20 per barrel and therefore now sets the tone for the short to medium term. In other words, we are likely to see an extended congestion phase develop for oil in this area where price agreement has now been met with oil set to oscillate in the $71 to $74 per barrel range. Longer-term we have a dramatic fall in the volume on the VPOC histogram to the right of the chart and so progress higher should be relatively straightforward requiring less effort to push on through $75 per barrel and on to $77 per barrel.

In terms of the fundamentals, it was business as usual with a large draw yesterday of -4.1m bbls beating the forecast of -2.6m bbls and correcting the blip in a build of last week which broke the run of eight consecutive draws at the Cushing hub. And with the driving season in full swing in the US, it was no surprise to see. So in summary, expect the WTI futures oil price to consolidate at the current level, and once we see the buyers return in volume, a move towards $75 per barrel and beyond longer term.

(Click on image to enlarge)