Oil Price Prediction: WTI Rebounds from $59 as Traders Brace for Breakout
Oil prices recovered a bit on Friday, ending 3 days of losses as traders began reassessing where they thought supply and demand...
Quick overview
- Oil prices saw a slight recovery on Friday after three days of losses, but both Brent and WTI crude are down about 2% for the week.
- A significant build in oil inventories and concerns over supply outpacing demand have contributed to the bearish outlook for crude oil.
- Geopolitical tensions, including US sanctions on Russia and Iran, continue to create uncertainty in the oil market.
- Traders are advised to watch key price levels, with a potential breakout above $60.10 signaling bullish momentum.
Oil prices recovered a bit on Friday, ending 3 days of losses as traders began reassessing where they thought supply and demand were headed amid renewed volatility. Brent and WTI crude are both down about 2% for the week, their 2nd straight weekly loss, hit by a stronger dollar and some US traders worrying that oil supply is getting ahead of demand in America.
A 5.2 million-barrel build in oil inventories, as reported by the Energy Information Administration on Monday, really brought home the concern that there’s just too much oil sloshing around, while some US refineries are slowing down, which isn’t helping the outlook. “The inventory build-up and people generally wanting to get out of risk have kept crude oil under pressure,” said Tony Sycamore of IG Markets, who points to the US government shutdown and pretty weak labor data as reasons to be cautious on the economy.
At the same time, though, the OPEC+ group has said it will raise output a bit in December but has put off any bigger increases till the new year. Saudi Arabia has also cut its oil prices to Asian buyers because it sees demand is pretty weak.
The Ongoing Sanctions and Policy Risks
The trouble with oil prices remaining uncertain is that the broader geopolitical picture remains tricky. The US has sanctions on Russia and Iran, which are disrupting supply lines to countries like China and India, and yesterday the Switzerland-based Gunvor Group said it was walking away from a deal to buy part of Russia’s Lukoil after the US Treasury Department objected. That is just one more sign that Washington is committed to getting at Russia’s energy firms, which may keep supply lines tight but also keep the market pretty nervous.
WTI Crude Oil Technicals
WTI crude is trading around $59.77, close to stabilizing after holding at $58.50, which it really had to, as it is an important support line. The market has been forming a symmetrical triangle, signalling that the price is just compressing and waiting for one final push before it breaks either way. On our 4-hour chart, the price is still below its 20-period EMA, which is bearish in the short term. The formation of higher lows indicates that buyers are becoming more confident.
The RSI, which measures how overbought or oversold a market is, is flat at about 45, a sign that bearish momentum is starting to wane and a small bullish divergence is forming. Some recent chart patterns, such as a spinning top followed by a bullish engulfing pattern, are also a sign of caution among sellers, and this could turn into a short-term reversal.
If the price can break above $60.10, it will give buyers a lot of confidence and could send the price all the way up to $61.50 and even $62.60. But on the flip side, if it drops below $58.50, the bears will really have the upper hand, and we’ll see losses all the way down to $57.40.
Crude Oil (USOIL) Trade Setup and Market Outlook
If you are a trader, one strategy could be to buy the break above $60.10, because, on balance, the risk-reward is pretty good, with a stop loss under $58.50. However, the market remains volatile, and sentiment is mixed, suggesting crude oil is poised to emerge from its consolidation phase soon.
As for where oil prices are going, it all depends on whether the current economic uncertainty persists or demand starts to pick up again. Oil looks set for a wild ride over the next few days.
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