OIL WEEKLY FORECAST: SLIGHTLY BULLISH
- Oil prices have retraced from its yearly high as OPEC+ infighting over production quotas and concerns about new COVID-19 outbreaks have weighed on sentiment
- Despite the recent pull-back, the outlook remains constructive for WTI crude prices
- In the week ahead, if the $70 support area holds, there is reason to believe bulls could set the stage for the next leg-higher
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Oil (WTI) volatility has certainly increased in July. First, infighting among OPEC+ members and the lack of agreement on future production quotas raised fears that the cartel could break up in the not too distant future, leading tounderstandable turbulence. As a reminder, earlier this month, talks among OPEC+ producersstalled amid a standoff with the United Arab Emirates over its request to raise its output limit from its current baseline. Although all parties involved seemed to have reached a compromise, there is still nothing official and no new meeting has been called.
Secondly, concerns about demand prospects in the face of rising Covid-19 cases of the delta variant have also spooked investors as new outbreaks threaten to weaken the global economic recovery. Against this backdrop, WTI crude has slipped from a fresh six-year high of $76.50 set on July 5 to the edge of $71.00 at the close Friday, in tandem with renewed U.S. dollar momentum and some reflation trades unwinding.
Despite the daily market noise and recent pullback, oil remains in abullish mode over the medium-term, as showcased on the daily chart below, where prices maintain a clear pattern of higher lows and higher highs and trade above three key SMAs: the 200-day, 100-day and 50-day moving average.
On the attached chart, we can also see that WTI remains above an impeccable ascending trendline extended from the 2020 low. This line, along with the 50 SMA which sits near the $70.00 psychological level at the moment, can be considered the most relevant short-term floor (a line in the sand for the market). If prices manage to stay above this support area in the next few days, bulls could regain control of the market and push prices towards resistance in the $75 region. A close above this barrier will expose the 2021 high near $77.
Notwithstanding the constructive outlook, it is also important to keep in mind the bearish scenario, as sometimes the unexpected happens and traders can be caught wrong-footed. That said, if prices slide further and decisively pierce the $70 area, selling pressure could gain momentum and trigger a move towards the $67 mark. Should this support fail, the May low near $61.50 would become the next downside level of interest in the coming days.
| Change in | Longs | Shorts | OI |
| Daily | -4% | 2% | -2% |
| Weekly | 20% | -19% | 4% |
WTI OIL TECHNICAL CHART
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---Written by Diego Colman, DailyFX Market Strategist
