WTI crude oil has been in selloff mode but some signs of a reversal can be seen on the 1-hour chart. A complex inverse head and shoulders pattern could be forming, signaling that buyers are about to take over.
However, the 100 SMA is till below the longer-term 200 SMA so the path of least resistance is to the downside. Price could find resistance at the 200 SMA dynamic inflection point even though it’s already trading past the 100 SMA now. A break above the 200 SMA could be followed by an upward crossover, which could increase bullish pressure.
Stochastic is on the move down, though, indicating that sellers are in control of price action. In that case, WTI crude oil could head back to the lows at $47/barrel or even break lower. RSI is also heading south, which means that selling momentum is in play.
Opposing forces are influencing crude oil these days. On the one hand, US inventories have been showing increasing stockpiles over the past few weeks, only to be followed by a slight dip last week. This could still keep oversupply concerns in play, leading traders to doubt that the OPEC output cut would have a lasting effect on market prices.
Still, OPEC members have shown commitment to their production cuts and there has even been talk of this deal being extended until the end of the year. Russia, which is not an OPEC member but is still one of the top oil producers in the globe, has been struggling to keep up with its commitments and has a lot of work to be done before achieving its output cut of 300K barrels per day for the upcoming quarter.
On the other hand, strong dollar action has also been weighing on commodities after the Fed hiked interest rates in their latest policy decision. Even though the actual announcement was followed by profit-taking and a dollar selloff, their increased hawkishness and openness to three rate hikes this year could keep the dollar supported.
At the same time, higher borrowing costs in the US would likely spill over to the rest of the globe and dampen spending and business investment. In turn, this could lead companies to scale back production to adjust to slower demand, leading to weaker demand for raw materials and commodities. This projected drop in demand, accompanied by a likely pickup in supply as US oil rigs continue to ramp up operations, could keep the path of least resistance to the downside for crude oil.