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Oil Prices Rise After Support Rejection, Strong USD & Growth Risks May Cap Gains

Oil Prices Rise After Support Rejection, Strong USD & Growth Risks May Cap Gains

Diego Colman, Strategist

OIL PRICES FORECAST

  • Oil prices rebound after encountering support in the $76.00/$77.00 area
  • Despite Tuesday’s move, the technical bias remains slightly bearish for crude WTI
  • The fundamental landscape appears to be deteriorating for cyclical commodities

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Most Read: Crude Oil Gains Reprieve on US Dollar Pause as Yields Soar. Where to for WTI?

Oil prices (WTI futures) perked up on Tuesday, up more than 2.5% to ~$79.00 per barrel, after a relentless sell-off in recent days, but settled slightly below their best intraday levels as risk assets, such as equities, came under pressure in afternoon trading. Despite today's moves in the energy complex, the near-term outlook for WTI appears bleak, especially after major levels have been invalidated over the past two weeks.

Looking at the daily chart below, we can see that light crude futures are trading below the 200-day, 100-day and 50-day moving averages and have been making lower highs and lower lows consistently since June. In addition, prices have just broken below a two-year rising trendline and the 50% Fibonacci retracement of the November 2020/March rally near the $82.00 mark, reinforcing the bearish signals.

With sentiment extremely negative on Wall Street amid mounting recession risks and the U.S. dollar at multi-decade highs, cyclical commodities will struggle to stage a large recovery soon. While it is true that the oil physical market remains tight on supply and demand imbalances, paper trading is, at times, more powerful in setting the tone and dictating the trend for the asset in question.

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Looking ahead, there are several technical levels that traders should watch in the coming days and weeks for possible guidance on market direction. In terms of support, the first area to consider appears to be the $76.00/$77.00 band, where prices bounced off in overnight trading. If sellers manage to breach this floor, downside pressure could accelerate, paving the way for a drop towards $75.00. On further weakness, the focus shifts down towards $61.80, the 61.8% retracement of the move discussed above.

On the other hand, if dip-buyers and tactical traders jump back in and trigger a bullish reversal, initial resistance appears at $82.00. If prices pierce this barrier, buying interest could gain momentum, creating the right conditions for an advance towards the $85.00 ceiling.

Oil - US Crude Bearish
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 8% -1% 7%
Weekly 37% -41% 14%
What does it mean for price action?
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CRUDE OIL PRICE TECHNICAL CHART

Chart, histogram  Description automatically generated

WTI Oil Chart Prepared Using TradingView

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---Written by Diego Colman, Market Strategist for DailyFX

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

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