Crude oil seems to be trying to stay afloat as a double bottom reversal pattern formed at the bottom of its long-term rising channel. Support is holding so far and a break past the neckline around $50 could confirm that a rally is in the cards. In that case, crude oil could bounce back up to the channel resistance near $55 or at least until the area of interest at $53.
The 100 SMA is below the longer-term 200 SMA on this time frame but the gap is narrowing so an upward crossover could be due. In that case, bullish pressure could pick up and give the bounce more traction. RSI is heading up to confirm that buyers are in control of price action at the moment. Stochastic is also heading north so crude oil could follow suit, but this oscillator is already in the overbought zone, which means that bulls are tired.
If the neckline resistance continues to keep gains in check, price could make another attempt at breaking below the lows near $48. A move below this area could set off a longer-term selloff for crude oil. Last week’s set of inventory data showed a small draw in stockpiles, easing concerns of oversupply somewhat. There has also been talk of extending the OPEC output deal until the end of the year but officials have mentioned that they would cooperation from non-OPEC nations in that case.
The next batch of inventory reports from the American Petroleum Institute and the Energy Information Administration could set the tone for crude oil price action in the coming days. Another large buildup in stockpiles would revive oversupply worries, especially since demand is expected to slow now that the Fed hiked borrowing costs. This would dampen investing and production activity in other parts of the globe, thereby weighing on demand for energy products.
However, another large reduction in inventory and a pause in US oil rig count growth could lend some support for the commodity. Drillers would likely scale back operations or rethink opening more rigs now that price has tanked lately. If so, crude oil could enjoy some upside for the rest of the week since there are no other major reports lined up from the US economy.
Canada is set to release its retail sales and CPI readings this week and strong gains could also influence the correlated commodity. Weaker than expected reports, on the other hand, could highlight the impact of the price drop on the Canadian economy.