Crude hovers either side of unch but likely to test $120 soon - analyst

The July NYMEX crude, RBOB gasoline and heating oil contracts are expected to open either side of unchanged to slightly higher this morning, says John Trolland of Oilintel. We expect to see some short covering after the past two trading sessions resulted in sharp moves to the downside. Tuesday and Wednesday saw July NYMEX crude oil fall $5.46 while July RBOB gasoline and heating oil contracts lost 19.56 and 17.62 cents respectively.

In last nights final story we suggested prices, after testing fresh lows, were likely to move higher due to prices in oversold territory and this is what occurred, until the last few minutes when crude oil slipped into negative territory again. At the same time we suggested that crude oil would likely encounter fresh selling somewhat above the $123.00 level, which it did, which confirms our belief that the market mentality has shifted to selling into rallies.

With no fresh market moving news overnight our first view for today's trading session suggest prices have a better chance of settling on the positive side of yesterday's close although in this market, anything is possible.

However, looking at technical indicators, this week's downtrend is not over. After a brief bounce higher this morning could be followed by another drop where crude oil could fall to $120.00, and even below that level. We expect this in the short-term, and in fact we see a test of $110.30 per barrel soon, but we're just not sure if that test will come this week. The $110.30 level was the major resistance level, when breached, started the drive higher to new records on an almost daily basis. That level is now the key support level, and if breached, points to much lower crude oil values.