WTI crude oil continues to trend higher and was off to a roaring start for 2018. However, as indicated in a previous article, price is approaching a long-term resistance level that could spur profit-taking.

In the weekly time frame, it can be seen that crude oil is nearing the area of interest at $62 per barrel. Zooming in to the daily time frame shows that this is close to the top of its ascending channel resistance somewhere around $63 to $65 per barrel.

Stochastic is already indicating overbought conditions or that buyers are already exhausted. RSI seems to be heading north still, although the oscillator is also in the overbought region as well. Turning lower could draw sellers back in and allow the resistance levels to hold for the time being.

In that case, crude oil could retreat to the channel support at $50 per barrel or at least until the mid-channel area of interest around $55 per barrel. The 100 SMA is above the longer-term 200 SMA, though, so the path of least resistance is to the upside, which suggests that an upside break from the ceiling could also be due.

These moving averages are close to the bottom of the channel, adding an extra layer of support in the event of a major correction.

The extension of the OPEC deal all the way until the end of this year has been one of the major factors keeping crude oil supported. Apart from that, pipeline shutdowns towards the latter part of 2017 also contributed to weaker production, thereby easing oversupply concerns. Forecasts of stronger demand from China have also led to a boost in price.

Looking ahead, the latest PMI readings from the world’s second largest economy noted a dip in manufacturing activity, which might then mean lower demand for energy commodities like crude oil. Inventory data from the US could also influence crude oil action at the start of the year as a large buildup might lead to a bit of unwinding for long positions.