Never miss a story from David Song

Subscribe to receive daily updates on publications
Please enter valid First Name
Please fill out this field.
Please enter valid Last Name
Please fill out this field.
Please enter valid email
Please fill out this field.
Please select a country

I’d like to receive information from DailyFX and IG about trading opportunities and their products and services via email.

Please fill out this field.

Your Forecast Is Headed to Your Inbox

But don't just read our analysis - put it to the rest. Your forecast comes with a free demo account from our provider, IG, so you can try out trading with zero risk.

Your demo is preloaded with £10,000 virtual funds, which you can use to trade over 10,000 live global markets.

We'll email you login details shortly.

Learn More about Your Demo

You are subscribed to David Song

You can manage your subscriptions by following the link in the footer of each email you will receive

An error occurred submitting your form.
Please try again later.

Oil Talking Points

Crude appears to be catching a bid as the United States restores sanctions on Iran, and recent price action raises the risk for a larger rebound as the Relative Strength Index (RSI) appears to be bouncing back from oversold territory.

Image of daily change for major financial markets

Oil Prices Risk Larger Rebound as RSI Recovers from Oversold Territory

Image of daily change for crude oil prices

In response to the Iran sanctions, it seems as though the Organization of the Petroleum Exporting Countries (OPEC) will pursue a produce as much you can mode’ over the remainder of the year, and the group may continue to react to the rise in protectionism as the U.S. and China, the two largest consumers of crude, struggle to reach a trade deal.

In turn, OPEC and its allies may continue to tame energy prices in 2019 as the Monthly Oil Market Report (MOMR) expects the slowdown in emerging market economies to drag on global consumption, and the pickup in volatility may continue to fuel a change in market behavior as retail interest pushes to extremes.

Image of IG client sentiment for crude oil

The IG Client Sentiment Report shows 84.1% of traders are net-long crude, with the ratio of traders long to short at 5.27 to 1.In fact, traders have been net-long since October 11 when oil traded near the $71.00 mark even though price has moved 15.7% lower since then. The number of traders net-long is 11.6% higher than yesterday and 54.1% higher from last week, while the number of traders net-short is 11.8% lower than yesterday and 11.0% lower from last week.

The ongoing accumulation in net-long interest offers a contrarian view to crowd sentiment as traders attempt to fade the weakness in oil prices, with the broader outlook for crude remains tilted to the downside as it now snaps the upward trend from earlier this year.

At the same time, the Relative Strength Index (RSI) also indicates a change in market behavior as the momentum indicator dips into oversold territory for the first time since 2017, but recent price action raises the risk for a larger rebound as the oscillator appears to be climbing back above 30. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.

Oil Daily Chart

Image of gbpusd daily chart
  • Crude remains vulnerable as it extends the series of lower highs & lows from the previous week, with a break/close below the $62.10 (78.6% retracement) to $62.80 (38.2% retracement) region opening up the Fibonacci overlap around $59.00 (61.8% retracement) to $59.30 (78.6% expansion), which sits just above the 2018-low ($58.11).
  • However, the RSI may flash a bullish signal as it threatens the bearish formation from October and appears to be bouncing back from oversold territory, with a series of failed attempts to break/close below the $62.10 (78.6% retracement) to $62.80 (38.2% retracement) region raising the risk for a move towards $64.80 (100% expansion) to $65.30 (61.8% retracement).
  • Next topside region of interest comes in around $67.00 (50% expansion) to $67.50 (50% retracement) followed by the $69.10 (61.8% expansion) to $69.70 (38.2% retracement) area.

For more in-depth analysis, check out the Q4 Forecast for Oil

Additional Trading Resources

Are you looking to improve your trading approach? Review the ‘Traits of a Successful Trader’ series on how to effectively use leverage along with other best practices that any trader can follow.

Want to know what other markets the DailyFX team is watching? Download and review the Top Trading Opportunities for 2018.

--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.