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Crude Oil Technical Forecast: Buoys Back Above 100, But Has Oil Topped?

Crude Oil Technical Forecast: Buoys Back Above 100, But Has Oil Topped?

James Stanley, Senior Strategist

Oil Technical Forecast: Bullish

  • Oil prices put in a net loss on the week but began to bounce after WTI tested below the psychological 100 level. This helped to create a morning star pattern on the daily chart which is often followed for bullish reversal potential, hypothesizing that a short-term low may have set.
  • This is a market that’s still highly-sensitive to geopolitical items that could spell continued volatility for oil prices.
  • The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.

It was another wild week in oil prices and, technically, as of this writing oil prices are still in a bear market, being more than 20% off of the high. But, if we want to take the ‘half glass full’ approach, oil prices are also 10% off of their recent lows, illustrating just how chaotic crude markets have become since Russia started to line the Ukrainian border with military reinforcements.

I wrote about oil on Tuesday, looking for some form of support to set in after a precipitous decline off of the highs. That turned out to be the day that the March low was set. But, it was the next day on Wednesday, the same as the FOMC rate decision, where the excitement started to build in oil. A doji printed. And sure, I get it, it’s just a doji, a simple sign of indecision. But, it was also a strong first step towards some reversal potential, and that showed up on Thursday with a big green/blue bar that wiped out the entirety of the Tuesday sell-off, creating a morning star formation in the process.

Morning star formations are often looked to for bullish reversals, built on the premise that price action may have set a near-term low. While that strength continued on Friday it was somewhat restrained, so the formation remained actionable, keeping the door open for strength as we move into next week’s trade.

WTI Crude Oil Daily Price Chart

Crude Oil Technical Forecast: Buoys Back Above 100, But Has Oil Topped?

Chart prepared by James Stanley; CL1 on Tradingview

Crude Oil Longer-Term – The Other Side

Taking a step back to the monthly chart and this highlights the possibility of greater reversal after the massive run in early-March, much of which has already been clawed back. And it was just 23 months ago that a similar wick showed but on the other side of price action. This was from April of 2020, when crude prices broke the zero barrier. But that elongated wick sticks out on price action and it’s pretty much been a straight shot-higher ever since.

But now, we’re seeing a similar wick on the monthly chart for March, with a massive reversal that’s shown in a really short period of time. Does this mean that we’re looking at similar reversal potential in crude oil prices? Possibly, but the jury is still out on that as the monthly bar still has a couple of weeks until completion.

Perhaps more helpful would be to incorporate some of the components that would be needed for such a scenario to come to fruition, and it really seems as though we would be banking on peace in the Russia-Ukraine situation, along with some optimism around the Iran deal. So, for the trade to become attractive, bigger picture, we would basically be betting on Russian restraint and cooperation between Iran and the U.S. This is not a trade that I would be very optimistic for; hopeful, but not optimistic. And as such, I would be very careful of calling a top just yet, and given shorter-term dynamics, there’s the potential for strength into next week. As such the technical forecast remains bullish for the week ahead.

WTI Crude Oil Monthly Price Chart

Crude Oil Technical Forecast: Buoys Back Above 100, But Has Oil Topped?

Chart prepared by James Stanley; CL1 on Tradingview

--- Written by James Stanley, Senior Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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