WTI crude oil finally broke out of its wedge consolidation pattern to signal that a downtrend may be in the cards. However, price is testing support at an ascending trend line connecting the lows since April.
If this holds, another bounce to the latest highs around $72 per barrel may be in order. A breakdown, on the other hand, could mean longer-term losses for the commodity.
The 100 SMA is still above the longer-term 200 SMA, though, so the path of least resistance is to the upside. In other words, the uptrend is more likely to resume than to reverse. However, the gap between the moving averages appears to be narrowing to signal weakening bullish momentum.
RSI is heading lower to confirm that sellers are in control, but the oscillator is also dipping into oversold territory. This reflects exhaustion among sellers and signals that buyers might return once it turns back up. Similarly, stochastic has been heading lower but is also indicating oversold conditions.
Crude oil returned most of its recent gains on speculations that the OPEC might adjust its output agreement to account for supply disruptions in Iran and Venezuela. Both could see lower output due to economic sanctions and conflict, likely limiting global oil supply and propping prices higher.
Although the OPEC has pledged to keep the output deal in place until the end of the year, it could relax compliance levels compared to the previous months were some member nations cut more than required. Now that crude oil has resumed the move to higher prices, there could be some leeway introduced.
Besides, resurfacing geopolitical risks on trade war concerns are also dampening crude oil gains. Trump has pulled out of the meeting with North Korea and has threatened to impose 25% tariffs on auto imports, triggering protests from Canada, Japan, China, and the European Union.