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Crude Oil Price Outlook Buoyed by Falling Volatility; PMIs Eyed

Crude Oil Price Outlook Buoyed by Falling Volatility; PMIs Eyed

2020-08-18 17:05:00
Rich Dvorak, Analyst
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CRUDE OIL PRICE FORECAST – OIL COULD CLIMB FURTHER AS VOLATILITY DRIFTS LOWER; MARKIT PMI DATA ON DECK

  • Crude oil price action pierced the $43.00/bbl level amid prevailing appetite for risk
  • Crude oil price trend remains bullish as the commodity maintains key moving averages
  • Falling market volatility and solid Markit PMI data could propel oil prices higher

Crude oil price action has lacked direction as of late with the commodity trading largely sideways over the last two months. That said, crude oil looks like it could be making an attempt at its next leg higher with prices perched around the $43.00-handle and month-to-date highs.

Oil - US Crude BULLISH
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 2% 5% 3%
Weekly -3% 3% -1%
What does it mean for price action?
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CRUDE OIL PRICE CHART: DAILY TIME FRAME (23 APRIL TO 18 AUGUST 2020)

Crude oil price chart forecast

Chart created by @RichDvorakFX with TradingView

The crude oil price trend still seems bullish as the commodity broadly maintains its 8-day and 34-day moving averages. Though upward momentum has largely stalled since June, it looks like positive divergence between the short-term moving average and medium-term moving average could soon resume. This might be indicated by a bullish MACD crossover.

CRUDE OIL PRICE CHART & VIX INDEX OVERLAID: 4-HOUR TIME FRAME (14 MAY TO 18 AUGUST 2020)

Crude oil price chart forecast

Chart created by @RichDvorakFX with TradingView

Despite conflicting fundamental headwinds, such as curbed OPEC+ supply cuts in the midst of recovering economic activity, it appears that the commodity is gaining ground on the back of sustained risk appetite and volatility suppression. This is highlighted by the strong inverse relationship typically maintained between crude oil and the VIX Index.

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On that note, upcoming Markit PMI data set for release this Friday, August 21 could weigh materially on market sentiment and thus the direction of crude oil price action. Global economic activity is expected to continue its rebound from coronavirus-related fallout, but if evidence of a stalling recovery is alluded to by this leading indicator to global GDP growth, bearish headwinds could be introduced.

Learn More – How to Trade Oil: Crude Oil Trading Strategies & Tips

-- Written by Rich Dvorak, Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

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