WTI crude oil is breaking above a complex inverted head and shoulders pattern to signal that a reversal from the downtrend is gaining traction. This could spur a climb that’s around the same height as the chart formation.
The 100 SMA is above the longer-term 200 SMA to indicate that the path of least resistance is to the upside. In other words, the uptrend is more likely to gain traction than to reverse. The reversal pattern spans $51 per barrel to around $60 per barrel, so the climb could last by this amount.
RSI is already in the overbought region, however, indicating that buyers are already exhausted and might be willing to let sellers take over. Stochastic is also in the overbought zone to signal that bulls are tired and that bearish pressure might return. A quick pullback could draw buyers at the broken neckline while a larger slide could still dip to the dynamic support at the moving averages.
The EIA reported that crude oil inventories declined by a larger 9.5 million barrels versus the expected reduction of 1.9 million barrels and the earlier drop of 1.1 million barrels. This gave more upside momentum to the ongoing rally as oversupply concerns eased.
Keep in mind that the OPEC recently decided to extend its output deal by nine months, longer than the expected six-month extension. Apart from that, expectations of an interest rate cut or two from the US central bank might be enough to keep riskier assets propped up as easing would likely support business and consumer demand.
Lastly, improved trade relations between the US and China are positive for commodities these days since any indication of an agreement or reduction of retaliatory measures would also support business optimism. Other catalysts that might affect commodity demand and overall sentiment are the US CPI and PPI releases.