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Oil Price Talking Points

Crude struggles to hold its ground amid the weakening outlook for demand, and recent price action raises the risk for a larger pullback as the Relative Strength Index (RSI) appears to be on the cusp of flashing a textbook sell signal.

Image of daily change for major financial markets

Oil Prices Susceptible to Larger Pullback on Looming RSI Sell Signal

Image of daily change for oil prices

The updated oil market report by the International Energy Agency (IEA) warns higher energy prices will beless comfortable for consumers than they were at the start of the year,’ with the group going onto say that ‘the mood will be influenced by the recent downgrade to global GDP growth by the International Monetary Fund (IMF)’ as the U.S. and China, the two largest consumer of crude, struggle to reach a trade agreement.

The IEA goes onto say that ‘there are mixed signals about the health of the global economy, and differing views about the likely level of oil prices’ as the Organization of the Petroleum Exporting Countries (OPEC) and its allies curb production, and the group may continue to regulate the energy market in 2019 amid the ongoing expansion in U.S. output.

Image of EIA weekly U.S. field production of crude oil

Along with the 7029K jump in crude inventories, updates from the U.S. Energy Information Administration (EIA) show weekly field production sitting at a record-high of 12,200K b/d in the week ending April 5. In response, OPEC and its allies may further their commitment to rebalance the energy market at the Joint Ministerial Monitory Committee (JMMC) meeting scheduled for May 19, and the alliance may keep oil prices afloat over the coming months despite the weakening outlook for demand.

In turn, current market conditions may keep crude oil afloat especially as both price and the Relative Strength Index (RSI) extend the bullish formations from late-2018. Keep in mind, the RSI as it sits in overbought territory for this year, but a textbook sell-signal emerge over the coming days should the oscillator fall below 70. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.

CL1 Daily Chart

Image of oil daily chart
  • The advance from the 2018-low ($42.36) appears to be getting exhausted, with oil prices at risk for a larger pullback following the failed attempts to break/close above the Fibonacci overlap around $64.90 (100% expansion) to $65.90 (78.6% retracement).
  • Will keep a close eye on the RSI as it sits in overbought territory, but may see a textbook sell-signal emerge should the oscillator fall below 70, which may spur a move back towards the $59.00 (61.8% retracement) to $59.70 (50% retracement) area.
  • Next downside region of interest comes in around $57.40 (61.8% retracement) followed by the overlap around $55.10 (61.8% expansion) to $55.60 (61.8% retracement).

For more in-depth analysis, check out the 2Q 2019 Forecast for Oil

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.