WTI crude oil recently fell through the bottom of its descending triangle pattern to signal that a selloff that’s the same size as the formation is underway. Price seems to be encountering support around $87.50 per barrel, so a pullback could follow.
The Fibonacci retracement tool shows that the 38.2% level is closest to the broken triangle bottom around $93 per barrel while the 50% level is at $94.85 per barrel. The line in the sand for a correction could be the 61.8% Fib at $96.60 per barrel, which is in line with the triangle top and 100 SMA dynamic resistance.
On the subject of moving averages, the 100 SMA is below the 200 SMA to indicate that the path of least resistance is to the downside or that the selloff is likely to gain traction. However, stochastic has been reflecting oversold conditions for quite some time, so turning higher would mean that buyers are returning.
RSI is also gearing up to pull higher from the oversold region to signal a pickup in bullish pressure. The oscillator has plenty of room to climb before reaching the overbought area to signal exhaustion among buyers.
Crude oil took hits after the Energy Information Administration reported a surprise build in stockpiles instead of the projected draw of 1.5 million barrels. This suggests that demand has slowed significantly, possibly as businesses reduced purchases of fuel and energy commodities due to higher prices.
Expectations of a slowdown in economic activity might also be weighing on demand for crude oil, especially after the US GDP report confirmed that the economy is in a technical recession.
The upcoming NFP release would likely push crude oil prices around since this tends to impact overall market sentiment. A stronger than expected read could mean more downside for the commodity since this would confirm that another 0.75% increase in borrowing costs is likely.