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Oil Price Outlook Mired by RSI Sell Signal Ahead of OPEC JMMC Meeting

Oil Price Outlook Mired by RSI Sell Signal Ahead of OPEC JMMC Meeting

David Song, Strategist

Oil Price Talking Points

The price of oil extends the series of lower highs and lows from the February high ($63.81) ahead of the Organization of the Petroleum Exporting Countries (OPEC) Joint Ministerial Monitoring Committee (JMMC) meeting on March 3, with recent developments in the Relative Strength Index (RSI) indicating a further decline in crude prices as the oscillator falls back from overbought territory and slips below 70.

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Oil Price Outlook Mired by RSI Sell Signal Ahead of OPEC JMMC Meeting

The price of oil appears to have reversed course ahead of the 2020 high ($65.65) as it trades back within the confines of the ascending channel established in November, but more of the same from OPEC+ may keep crude prices afloat as Saudi Arabia stays on track to reduce supply by 1 million b/d until April.

It remains to be seen if OPEC and its allies will switch gears later this year as the most recent Monthly Oil Market Report (MOMR) insists that “positive developments on the economic front, supported by massive stimulus programmes, are expected to encourage demand in various sectors in 2H21, but a textbook RSI sell signal has emerged ahead of the JMMC meeting as the oscillator falls back from overbought territory and slips below 70.

In turn, the recent series of lower highs and lows may push the price of oil towards channel support as the bullish momentum abates, but the pullback from the February high ($63.81) may turn out to be an exhaustion in the broader trend rather than a change in behavior as US production currently sits at its lowest level since 2017.

With that said, the bearish price action in crude may persist as long as the RSI tracks the downward trend established last month, and the price of oil may fall back towards channel support following the failed attempt to test the 2020 high ($65.65).

Oil Price Daily Chart

Image of Oil price daily chart

Source: Trading View

  • Keep in mind, crude broke out of the range bound price action from the third quarter of 2020 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 from the 2020 high ($65.65) as both the 50-Day SMA ($54.07) and 200-Day SMA( $43.65) track a positive slope.
  • At the same time, crude has broken out of the range bound price action carried over from the end of January to extend the upward trend established in November, but the Relative Strength Index (RSI) failed to keep up as a break of trendline support emerged ahead of February.
  • Nevertheless, developments in the RSI offered a constructive outlook as the oscillator held above 70 since the start of February, but a textbook sell signal has emerged as the indicator establishes a downward trend and slips back below 70.
  • The failed attempt to test the 2020 high ($65.65) may push the price of oil towards channel support, with the first region of interest coming in around $59.40 (38.2% expansion) followed by the Fibonacci overlap around $58.00 (50% expansion) to $58.40 (23.6% expansion).
  • It remains to be seen if the pullback from the February high ($63.81) will turn out to be an exhaustion in the broader trend rather than a change in behavior as the price of gold has held above the 50-Day SMA ($54.07) since November.

--- 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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