Crude Oil Extends Support Bounce on OPEC as Virus Fears Abate
CRUDE OIL FORECAST: OIL PRICE ACTION SPIKES OFF TECHNICAL SUPPORT AHEAD OF OPEC MEETING AS CORONAVIRUS FEARS FADE
- Oil has staged an encouraging rebound attempt off a key technical support level following its steep slide earlier this year
- Crude oil prices have been bolstered by receding market angst around the novel coronavirus outbreak as well as prospects for more oil supply cuts from OPEC next month
- The bounce-back in crude oil could quickly reverse with intimidating areas of resistance that may prove difficult to overcome
Crude oil price action has begun Thursday’s trading session on its front foot and sets the commodity on pace to extend its rebound for its seventh consecutive day.
After crashing over 20% and into a bear market from its year-to-date high, the oil market has started to recoup recent downside on the back of fading concerns surrounding the coronavirus and global GDP growth.
The latest stretch to the upside can also be attributed to headlines that confirmed an upcoming OPEC meeting will take place over March 05 and March 06.
CRUDE OIL PRICE CHART: DAILY TIME FRAME (SEPTEMBER 2020 TO FEBRUARY 2020)
OPEC – the oil cartel responsible for approximately 30% of global oil output – is largely expected to extend or deepen crude oil production cuts in aims of rebalancing supply with demand.
That said, sellers of crude oil struggled to make a sustained push below the psychologically-significant $50.00/bbl price, which I pointed out as a likely possibility in a recent crude oil forecast.
This critical technical support level around the $50.00/bbl handle is underpinned roughly by the lows printed by crude oil prices last year and seems to have served as a springboard for the oil market’s ongoing rebound.
The 23.6% Fibonacci retracement of the commodity’s nosedive during 4Q-2018 also highlights this area of confluence.
CRUDE OIL PRICE CHART: WEEKLY TIME FRAME (DECEMBER 2016 TO FEBRUARY 2020)
The price of crude oil subsequently etched out a series of higher lows off this support level as bears grew exhausted and struggled to maintain downward pressure.
A jump above $52.00/bbl earlier this week likely helped accelerate the ongoing rebound in WTI as commodity traders cover their short positions.
Spot crude is now testing the January 29 highs around $54.00 and could serve as an initial point of contention over the oil market’s next direction before the $55.00 handle comes into focus as another possible zone of technical resistance.
CRUDE OIL PRICE CHART: 2-HOUR TIME FRAME (JANUARY 2020 TO FEBRUARY 2020)
On that note, a 2-hour crude oil chart reveals that upward momentum is fading as indicated by negative divergence on the MACD and RSI. Meanwhile, a Bollinger Band ™ squeeze could be unfolding, which has potential to pressure crude oil prices back lower.
Furthermore, oil volatility remains elevated and suggests that investor sentiment remains unstable due to lack of clarity around the economic impact from and spread of the coronavirus.
This bearish fundamental headwind is also illustrated by the US Treasury yield curve, which just inverted again along the three-month and 10-year maturities.
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