WTI crude oil recently bounced off the long-term channel support near $47/barrel and seems to be pulling up from its dive. Applying the Fib tool on the latest swing high and low shows that the 61.8% retracement level lines up with the 100 SMA dynamic inflection point.
This short-term moving average just crossed below the longer-term 200 SMA, confirming that the path of least resistance is to the downside. Stochastic is on the move up to show that bullish momentum is present but the oscillator is already in the overbought zone, which means that buyers might need a break. Once the oscillator crosses down and turns lower, selling momentum could ensue and allow the selloff to resume.
Meanwhile, RSI has a ways to go before reaching overbought levels so there might be more room for bulls to take oil prices higher. The next ceiling is at the 38.2% Fib which lines up with the $50/barrel psychological level. The 50% level lines up with $51/barrel and the 61.8% level coincides with $52/barrel, all serving as potential resistance points in this corrective wave. An even larger pullback could last until the broken short-term rising support at $53/barrel.
A break past that area could keep the path open for a move towards the longer-term channel resistance at $56-57/barrel. Of course it would take a really strong catalyst to get oil prices to that level, but we are seeing some signs of market pressure abating so far.
Recall that crude oil price staged a sharp break below consolidation after oil stockpile reports in the US showed a large buildup of inventory. This revived oversupply concerns and lack of demand, leading many to speculate that the OPEC output cut agreed upon back in November and started in January this year would have a limited effect.
Still, a number of headlines confirmed that OPEC member nations are sticking to their pledge. While Saudi Arabia saw an increase in production, data showed that these barrels were simply brought back to domestic refineries and storage instead of being sold in international markets. However, Russia’s production numbers show that they are having a tough time bringing output down to their target levels and has a lot of work to do before reaching their Q2 reduction target. Keep in mind, though, that Russia is not an OPEC member but is still one of the world’s top producers of oil.
Oil is also somehow able to benefit from the dollar selloff that happened after the FOMC statement, as traders saw little conviction that the US central bank can be able to hike rates again in another three months. While the Fed adjusted their rhetoric in their recent statement to show upgraded assessments of inflation and sentiment, Chairperson Yellen said that they will be ready to adjust to incoming data and fiscal policy changes so there’s still a huge element of uncertainty.