CRUDE OIL PRICE WEEKLY TECHNICAL FORECAST – BEARISH
- Crude oil prices surged 18% this month to hit its highest level since January 2020
- Oil price action has started to consolidate lower and is challenging trend support
- The commodity could extend its pullback if bears breach the $61.00-price level
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Crude oil price outlook for the week ahead could see bears attempt to wrestle back control of short-term direction. Potential for a pullback in oil prices comes on the heels of waning upward momentum and buyer exhaustion. This follows the near 20% monthly gain for February, which pushed the commodity to a 13-month high.
CRUDE OIL PRICE CHART: 4-HOUR TIME FRAME (28 JAN TO 26 FEB 2021)
Chart by @RichDvorakFX created using TradingView
It appears the rally is starting to unwind, however, as crude oil ricochets off the $63.75-price level. This area of technical confluence is underpinned by a long-term bearish trendline connecting the July 2008 and June 2014 swing highs. Further, negative divergence reflected by the relative strength index on a 4-hour crude oil chart suggests bullish impetus has deteriorated.
Crude oil price action could see an acceleration in selling pressure if bulls fail to defend the 61.00-handle. Breaching this support level might motivate crude oil bears to make a deeper push to the $58.75-price level roughly where the 20-day simple moving average resides. On the other hand, maintaining the positively-sloped regression trend developed throughout February could see year-to-date highs come back into focus.
CRUDE OIL PRICE CHART: DAILY TIME FRAME (16 OCT 2020 TO 26 FEB 2021)
Chart by @RichDvorakFX created using TradingView
Nearside support and resistance levels for crude oil are also highlighted by its 8-day simple moving average and upper Bollinger Band, respectively. Speaking of Bollinger Bands, the contracting Bollinger Band width points to pullback potential, and is a development that might warrant more credence with a breakdown of the $61.00-price level. This could correspond with a bearish MACD crossover.
| Change in | Longs | Shorts | OI |
| Daily | -4% | 5% | -1% |
| Weekly | -27% | 113% | -6% |
Crude oil price action may gravitate toward the 23.6% Fibonacci retracement level of its trading range over the last four months if a deeper pullback does come into play. The next zone of buoyancy below that is resistance-turned-support around January highs, which roughly aligns with the 50-day simple moving average as well.
CRUDE OIL PRICE CHART WITH OVX INDEX OVERLAID: DAILY TIME FRAME (22 JUN 2020 TO 26 FEB 2021)
Chart by @RichDvorakFX created using TradingView
Not to mention, the OVX Index (i.e. 30-day implied volatility of crude oil) has turned sharply higher recently and indicates trader uncertainty is on the rise. If the ascent is sustained, it could create headwinds for crude oil price action – particularly with a return of the historically strong negative correlation between crude oil and its 30-day implied volatility reading.
This threat might gain more traction with a further deterioration in broader market sentiment. Nevertheless, there may be more powerful forces weighing on crude oil price action next week. Scheduled event risk posed by the March 2021 OPEC meeting stands out as the most prominent fundamental catalyst.
-- Written by Rich Dvorak, Analyst for DailyFX.com
Connect with @RichDvorakFX on Twitter for real-time market insight
