WTI crude oil is breaking above its short-term descending trend line, but the commodity might still resume the downtrend once it tests the next resistance levels on the 4-hour time frame.
Price is still trading below a longer-term falling trend line on this chart, and the resistance is located around $85-87 per barrel. The 100 SMA is below the 200 SMA to confirm that the path of least resistance is to the downside or that the selloff is more likely to resume than to reverse.
In addition, the moving averages might also hold as dynamic resistance levels around $83-85 per barrel.
Stochastic is already in the overbought region to signal exhaustion among buyers, so turning lower would mean a return in selling pressure. If that happens, crude oil could dip back to the lows below $80 per barrel next.
RSI has a bit more room to climb before reflecting overbought conditions or exhaustion among buyers, so the correction could keep going until it does.
Crude oil popped higher on rumors that the OPEC is considering a cut in production in order to stem the price decline. There have been talks of as much as 1 million barrels per day in supply reductions, which might mean more upside for the commodity in the weeks ahead.
A smaller than expected cut, however, could be underwhelming for crude oil prices and lead to a dip.
The upcoming inventory reports from the American Petroleum Institute and Energy Information Administration might also bring some volatility for crude oil prices around the middle of the week. A draw in stockpiles could signal elevated demand, which might be bullish for the commodity.
On the other hand, a draw would underscore investors’ recession fears, as demand for fuel and energy commodities likely dipped due to higher borrowing costs and stronger inflation.