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Crude Oil Drops a 6th Straight Week Amid Extreme Volatility

Crude Oil Drops a 6th Straight Week Amid Extreme Volatility

John Kicklighter,
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Technical Forecast for US Crude Oil: Neutral

  • After suffering its second worst monthly loss since 2008 (after the April 2020 inversion), crude oil managed to reign in its bleeding this past week
  • Despite a decelerated tumble of only -2.8% this last week after the -10.3% tumble the week before, the commodity is still in a six-week spiral
  • A critical technical floor of overlapping Fibonacci’s and pivot levels stands at the 62.50 to 61.50 zone
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The bears are still in control of US crude oil, but a serious support level has come into play for the bulls looking to keep the larger, post-pandemic trend in play. The zone between 61.50 and 62.50 carries with it very conspicuous influence for chart watchers. At the higher end of that range, we have the 61.8 percent Fibonnaci retracement pulled from the historical range of the commodity – from the highs set back in 2008 down to the low set with the unprecedented inversion back in April 2020. For more recent reference, we have the range of rejected bearish rejections stretched out over the past six months. This past Thursday’s sharp reversal from that zone further built up the weight of the area and in turn drew the battle lines.

Chart of US Crude Oil with Volume and the 200-Day Moving Average (Daily)

Chart Created on Tradingview Platform

The most important picture of the trading landscape that I see ahead is the degree of volatility. When markets are more active, there is a greater chance of tipping into an ‘accidental’ break. Given the state of liquidity and the unsure backdrop of the ‘risk’ market, this accident can trigger an unintended cascade. Should fears over the sanctity of ‘risk on’ continue to build into the coming week, a volatile stab at 62.50 is more probable. And, if we clear that floor, we unusual market conditions that can override the expected December fade to make something more of a bearish resolution. Consider volatility hallmarks like the daily ‘wicks’. There has been a notable increase of intraday reversals to levels not seen since the height of the pandemic. Then there is also the 5-day ATR which is in similar territory. So long as volatility remains high, oil traders should be squarely focused on the strength of the 62.50 level.

Chart of US Crude Oil with 200-Day SMA, 5-Day ATR and Wicks (Daily)

Chart Created on Tradingview Platform

Pulling back to appreciate the bigger picture for a moment, the weekly chart only throws into greater relief the intensity of the past month-and-a-half reversal. While there is still a post-pandemic bullish inclination with higher swing lows, the situation is precarious with a six-week tumble with clear pressure on the aforementioned technical floor and unusual volume to boot. In this environment, there will be exceptional sensitivity to headlines and cross correlation to other risk assets.

Chart of US Crude Oil with 50-Week Moving Average and Volume and Consecutive Candles (Weekly)

Chart Created on Tradingview Platform

Finally a look at speculative positioning. Net speculative futures positioning took a dive well before this most recent check lower, and the move now seems fortuities – if early. This past week, futures trades further eased back on their long view, but not to the same dramatic scale as underlying price action from the previous two weeks. There is a remarkable disconnect here on this positioning to price relative to some other assets; so traders should not lean to heavily on the signal or contrarian signal to be evaluated here.

Oil - US Crude Mixed
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 0% -3% -1%
Weekly -19% 55% -12%
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Chart of US Crude Oil Futures Overlaid with Net Speculative Futures Positioning (Weekly)

Chart Created by John Kicklighter with Data from Bloomberg

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