Oil is doing the thing that no one thought it would do

The week began with OPEC adding barrels once again and there was also a mid-week report that Saudi Arabia wanted to keep adding 411K bpd in August and potentially September.

Despite all that, oil is having a great week, up 6.5%. Perhaps some of that was relief that OPEC didn’t add even more barrels on the weekend but it’s a move that’s caught the market by surprise.

I highlighted a potential inverted head-and-shoulders pattern at the start of the week and now we’re at the point where it could break the neckline. Such a move would need to crack $65 first and it’s late in the week for that but this could be a very interesting spot in the week ahead.

Market positioning is short and there is a big gap on the chart back up to $70-71 that could lead to a quick squeeze. Time spreads have been surprisingly bullish and there is optimism around trade. If Trump locks in a trade deal or two in the week ahead — particularly with sub-10% tariffs, then we could see some relief in risk assets generally, including oil.

WTI crude oil is up $1.34 to $64.72 today and trading at a session high.

Update: In a sense of what’s driving some of the optimism, the Baker Hughes US oil rig count is out and nine rigs were dropped in the past week, leaving total rigs at 442. They’ve been falling fast.

This article was written by Adam Button at www.forexlive.com.