WTI crude oil keeps crawling higher but is also consolidating inside a rising wedge formation. Price is nearing the peak of the formation so a breakout could be due sooner or later.
For now, price is testing the wedge support that coincides with the 100 SMA dynamic inflection point. This short-term moving average is above the longer-term 200 SMA to confirm that the path of least resistance is to the upside. In other words, the uptrend is more likely to resume than to reverse. Also, the gap between the moving averages is widening to reflect stronger bullish momentum.
RSI is on middle ground to reflect ongoing consolidation while stochastic is on the move up to show that there’s some buying pressure left. An upside break could lead to a rally of the same height as the chart pattern, which spans $62 per barrel to $72 per barrel. Similarly, a downside break could spur a drop of the same size.
Geopolitical risks that propped up crude oil over the past weeks seem to be fading into the background, which might mean profit-taking for the commodity. At the same time, dollar strength is currently in play and this usually dampens price gains as well.
Tightening expectations picked up despite weak US retail sales as underlying data revealed price gains and the previous month’s report saw upward revisions. Although Fed officials have downplayed these speculations, traders seem to be bracing for a rate hike for next month.
Looking ahead, API and EIA data could determine where crude oil might break out. Last week saw surprise draws so another set of those this week could fuel the rallies. On the other hand, a large buildup could lead to a selloff, along with an increase in oil rig counts to be reported by Baker Hughes later on.