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Crude Oil Price Outlook Mired by Death Cross Formation

Crude Oil Price Outlook Mired by Death Cross Formation

David Song, Strategist

Oil Price Talking Points

Oil prices have failed to retain the advance following the Group of 20 (G20) summit, and the advance from the June-low ($50.60) may continue to unravel as a ‘death-cross’ formation takes shape.

Crude Oil Price Outlook Mired by Death Cross Formation

The recent weakness in the price of oil appears to be catching traders off guard as the Organization of the Petroleum Exporting Countries (OPEC) and its allies plan to regulate the energy market well into 2020.

It seems as though the extension of the OPEC+ alliance was not enough to keep oil prices afloat amid the weakening outlook for global growth, and the group may have little choice but to clamp down on production especially as the US and China, the two largest consumers of crude, struggle to reach a trade deal.

Image of OPEC crude oil demand forecast

In turn, OPEC and its allies may take additional steps to balance the energy market as the most recent Monthly Oil Market Report (MOMR) highlights slower consumption for 2019.

Until then, the lack of urgency to further reduce outputs may continue to drag on crude, with recent developments raising the risk for lower oil prices as a ‘death-cross takes shape.’

Crude Oil Daily Chart

Image of oil daily chart
  • Keep in mind, the broader outlook for crude oil is no longer constructive as both price and the Relative Strength Index (RSI) snap the bullish trends from earlier this year.
  • At the same time, a ‘death cross’ formation has taken shape as the 50-Day SMA ($58.54) crosses below the 200-Day SMA ($58.62), with both moving averages tracking a negative slope.
  • The string of failed attempts to close above the Fibonacci overlap around $59.00 (61.8% retracement) to $59.70 (50% retracement) has pushed crude prices back below the $57.40 (61.8% retracement) pivot, with the next area of interest coming in around $54.90 (61.8% expansion) to $55.60 (61.8% retracement).
  • Next downside hurdle comes in around $51.40 (50% retracement) to $51.80 (50% expansion) followed by the overlap around $48.80 (38.2% expansion) to $49.80 (78.6% retracement).
  • The RSI also offers a bearish signal as the oscillator snaps the upward trend carried over from the previous month.

Sign up and join DailyFX Currency Strategist David Song LIVE for an opportunity to discuss key themes and potential trade setups.

For more in-depth analysis, check out the 3Q 2019 Forecast for Oil

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--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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