Crude Oil Price Rebound Stalls to Keep Descending Channel Intact

Crude Oil Price Talking Points

The price of oil fails to extend the series of higher highs and lows from earlier this week despite an unexpected decline in US inventories, and crude may give back the advance from the monthly low ($90.56) as it continues to trade within a descending channel.

Crude Oil Price Rebound Stalls to Keep Descending Channel Intact

The recent recovery in the price of oil appears to be stalling as it comes up against channel resistance, and crude may fall back towards the 200-Day SMA ($93.87) as it tests the moving average for the first time in 2022.

Failure to hold above the moving average may indicate a potential shift in the broader trend as the Organization of Petroleum Exporting Countries (OPEC) retain the adjusted production schedule, and it remains to be seen if the group will respond to the developments coming out of the US as they plan to adjust upward the monthly overall production for the month of August 2022 by 0.648 mb/d.”

Fresh figures from the Energy Information Administration (EIA) show crude inventories narrowing 0.446M in the week ending July 15 versus forecasts for a 1.357M rise, and evidence of sticky demand may encourage OPEC to retain the current output schedule as the most recent Monthly Oil Market Report (MOMR) reveals that “for 2022, world oil demand is foreseen to rise by 3.4 mb/d, unchanged from last month’s estimate.”

As a result, the price of oil may struggle to hold its ground ahead of the next OPEC Ministerial Meeting on August 3 as it shows a limited reaction to the recent data prints, but a further slowdown in US production may shore up crude prices amid the ongoing disruptions caused by the Russia-Ukraine war.

A deeper look at the figures from the EIA show weekly field production falling for the second week, with output slipping to 11,900K in the week ending July 15 from 12,000K the week prior, and current market conditions may keep OPEC on its present course as global demand remains robust.

With that said, the price of oil may continue to within the downward trending channel as it fails to extend the series of higher highs and lows from earlier this week, and failure to hold above the 200-Day SMA ($93.87) may indicate a potential shift in the broader trend as crude tests the moving average for the first time this year.

Crude Oil Price Daily Chart

Source: Trading View

• The price of oil fails to extend the recent series of higher highs and lows as it comes up against channel resistance, and lack of momentum to hold above the $100.20 (38.2% expansion) area may push crude back towards the Fibonacci overlap around $93.50 (61.8% retracement) to $95.30 (23.6% expansion), which lines up with the 200-Day SMA ($93.87).
• The bearish trend may persist as the price of oil tests the moving average for the first time in 2022, and failure to hold above the indicator may push crude towards the $90.60 (100% expansion) to $91.60 (100% expansion) region, which lines up with the monthly low ($90.56).
• Next area of interest comes in around $88.10 (23.6% expansion), with a move below the February low ($86.55) opening up the $84.20 (78.6% expansion) to $84.60 (78.6% expansion) region.

--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong