WTI crude oil has failed to consolidate above $85 a barrel, even though the price has approached this boundary three times since October. Moreover, a reversal pattern is emerging on the daily chart. What is the outlook for oil prices now from a fundamental and technical point of view?
A double-top pattern is emerging on the WTI daily timeframe in the $79-$85/bbl range. The trading week ended above $80, which now creates technical conditions for one of two scenarios.
The first is a breakout of the $79 a barrel level. Fixing under it would indicate that the reversal pattern has been triggered. The target for the decline, taking into account the potential of the model working out, will be in the area of $73-75.
The second is for WTI to return to the upside to draw a third top in a bearish reversal pattern. In this case, the price could recover to resistance in the $85 area and return from it to break support at $79 a barrel.
And what is happening on the fundamental backdrop in the meantime and are there any drivers for further declines in oil? Last week, the price fell on the back of a rising US dollar after a report on record inflation growth. Expectations that the Fed might accelerate its interest rate hike to curb rising price pressures have intensified in the market.
A second factor was rumours that President Joe Biden’s administration might release oil from the US Strategic Petroleum Reserve to lower prices. Such a form of state intervention would ease supply shortage fears, which had previously pushed the price to multi-month highs.
Looking ahead to the coming weeks, US dollar dynamics and President Joe Biden’s decision on supply expansion could have an impact on oil futures dynamics. But new factors could also emerge, cumulatively affecting supply and demand dynamics.
It is pertinent to remember here that price includes everything and technical patterns reflect the processes that take place in the market. Against this background, a hint of a trend reversal is worth taking into account. The only question is whether it will occur after the second, or after the third top.
00.50 Japan Q3 GDP
03.00 China industrial production for October
Important Notes on This Publication:
The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.