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Oil Price Forecast: Crude Stages Five Day Rally to Eye July High

Oil Price Forecast: Crude Stages Five Day Rally to Eye July High

David Song, Strategist

Oil Price Talking Points

The price of oil appears to be on track to test the yearly high ($76.98) after breaking out of the descending channel from earlier this year, and looming developments in the Relative Strength Index (RSI) may indicate a further advance in crude prices as the oscillator approaches overbought territory.


Oil Price Forecast: Crude Stages Five Day Rally to Eye July High

The price of oil stages a five day rally for the first time since January as ‘panic buying’ fuels the supply crisis in the UK, and current market conditions may keep crude prices afloat as the Organization of Petroleum Exporting Countries (OPEC) stay on track to boost “overall production by 0.4 mb/d for the month of October 2021.”

Image of EIA Weekly US Field Production of Crude Oil

Meanwhile, the latest figures from the US Energy Information Administration (EIA) continues to reflect the disruptions caused by Hurricane Ida as weekly field output widened to 10,600K from 10,100K in the week ending September 10, which remains well below the 11,500K print seen in the week ending August 27.

Image of DailyFX Economic Calendar for US

As a result, fresh data prints coming out of the US may continue to influence the price of oil ahead of the next OPEC and non-OPEC Ministerial Meeting on October 4 as crude inventories contract for seven consecutive weeks, with stockpiles narrowing 3.481M in the weekend September 17 versus forecasts for 2.44M decline.

Looking ahead, it remains to be seen if OPEC and its allies will ramp up production over the remainder of the year as the most recent Monthly Oil Market Report (MOMR) emphasizes that “in 2022, oil demand is expected to robustly grow by around 4.2 mb/d, some 0.9 mb/d higher compared to last month’s assessment, but more of the same from the group may prop up the price of oil as OPEC+ remains in no rush to push crude output towards pre-pandemic levels.

With that said, signs of stronger demand along with indications of limited supply may continue to act as a backstop for the price of oil, and the decline from the July high ($76.98) may turn out to be a correction in the broader trend as crude breaks out of the descending channel established during the same period.

Oil Price Daily Chart

Image of NZD/USD rate daily chart

Source: Trading View

  • Keep in mind, the price of oil traded to a fresh yearly high ($76.98) in July as both the 50-Day SMA ($69.54) and 200-Day SMA ($63.59) established a positive slope, and the broader outlook for crude remains constructive as the rally from earlier this year removed the threat of a double-top formation.
  • However, a descending channel took shape following the failed attempt to test the 2018 high ($76.90), with the price of oil slipping below the 50-Day SMA ($69.54) for the first time since May.
  • Nevertheless, the price of oil reversed coursed after defending the May low ($61.56), with crude breaking out of the downward trending channel from earlier this year to take out the August high ($73.95).
  • As a result, the price of oil appears to be on track to test the July high ($76.98), but need a close above the $76.90 (50% retracement) to $77.30 (78.6% expansion)region to bring the $78.50 (61.8% expansion) to $78.80 (50% retracement) area on the radar.
  • Looming developments in the Relative Strength Index (RSI) may show the bullish momentum gathering pace as the oscillator approaches overbought territory, with a move above 70 in the oscillator likely to be accompanied by higher oil prices like the behavior seen earlier this year.

--- 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.