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Oil Price Outlook: Break of 3Q Range Sends RSI Towards Overbought Zone

Oil Price Outlook: Break of 3Q Range Sends RSI Towards Overbought Zone

David Song, Strategist

Oil Price Talking Points

The price of oil clears the August high ($43.78) ahead of the Organization of the Petroleum Exporting Countries (OPEC)Ministerial meeting on tap for December 1, and crude may continue to retrace the decline resulting from the COVID-19 pandemic as it breaks out of the range-bound price action carried over from the third quarter.

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Oil Price Outlook: Break of 3Q Range Sends RSI Towards Overbought Zone

The price of carves a series of higher highs and lows ahead of the Thanksgiving holiday as it trades to a fresh monthly high ($45.20), and the recent rise in crude prices may gather pace as the Relative Strength Index (RSI) breaks out of the downward trend from earlier this and approaches overbought territory.

It remains to be seen if OPEC’s last meeting for 2020 will influence the near-term outlook for crude as Secretary General Mohammad Barkindo warns that “the oil market today is overshadowed by the resurgence of COVID-19 and a slower pace of economic recovery than we had envisioned in the second half of the year” while speaking at the Crescent Ideas Forum.

Nevertheless, Barkindo goes onto say that “the outlook for crude oil may look anemic now, but we anticipate a gradual normalization of demand growth as the world recovers from the COVID-19 shock,” and the comments suggests OPEC and its allies are in no rush to further rebalance the energy market as US production remains around its lowest levels since 2018.

Image of EIA weekly US field production of crude oil

However, the latest figures from the Energy Information Energy (EIA) showed field production of crude increasing for the first time since the end of October, with output climbing to 10,900K in the week ending November 13 from 10,500K the week prior. A further recovery in US production may drag on oil prices amid concerns of protracted economic recovery, but the move above the August high ($43.78) brings the March high ($48.66) on the radar as crude breaks out of the range-bound price action carried over from the third quarter.

The Relative Strength Index (RSI) highlights a similar dynamic as the oscillator breaks out of the downward trend carried over from June, and the indicator may show the bullish momentum gathering pace if the oscillator pushes into overbought territory for the first time since 2019.

Oil Price Daily Chart

Image of oil price daily chart

Source: Trading View

  • Crude breaks out of the range bound price action carried over from the third quarter following the failed attempt to close below the Fibonacci overlap around $34.80 (61.8% expansion) to $35.90 (50% retracement), and the price of oil may continue to retrace the decline resulting from the COVID-19 pandemic as the break above the August high ($43.78) brings the March high ($48.66) on the radar
  • The Relative Strength Index (RSI) shows a similar dynamic as the oscillator breaks out of the downward trend from June and approaches overbought territory, with a move above 70 likely to be accompanied by higher oil prices like the behavior last seen in 2019.
  • Still need a close above the $44.60 (61.8% expansion) to $45.10 (61.8% expansion) region to open up the $49.20 (50% expansion) area, which largely incorporates the March high ($48.66), with the next zone of interest coming in around $52.90 (78.6% retracement) to $53.30 (38.2% expansion).

--- 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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