The price of crude oil, especially that of the West Texas Intermediate (WTI) type, has been quite volatile over the last several weeks. The massive tribulations that the precious commodity has experienced are summarised for you in our latest Global Affairs material.
The WTI tumbled to nearly -$40 per barrel when the May futures contracts expired in late April, but has subsequently managed to bounce back to around $25 per barrel. Following this momentary 'stabilisation', the price of crude has started to consolidate within the boundaries of a narrow range, as investors wait to see whether global demand would pick up now that more and more states are working towards gradually reopening their economies.
Most traders are weighing in on whether the price would break out above the consolidation range, thereby forming a new bullish trend signifying the further normalisation of the energy market. In contrast, others are concerned with the possibility of the aggregate supply still outpacing the moderate rise in global demand, leading to a new selloff near the $0 threshold.
That is why today's analysis evaluates the most recent accords struck by OPEC+ as regards cutting oil production even more and examines how these changes to global supply are likely going to affect crude's price in the midterm. The analysis also studies the overall behaviour of the underlying price action that has been observed recently.
1. Long Term Outlook:
As can be seen on the daily chart below, the price action currently finds itself at a crucial junction, with the possibility of heading in either direction. As regards the ADX, the index has been trading above 25 points since Late-January, which means that the market currently finds itself in a trending environment.
Nevertheless, the ADX is very close to falling below this pivotal benchmark, which would underpin the transition of the market into a technical range-trading environment. This would be bad news for the market bulls, as it would also signify the exhaustion of the recent bullish correction's strength, and would also make the change of the price action's underlying direction seem more likely.
Additionally, the ADX is currently in the process of converging towards the DI+ and the DI-, as highlighted by the green square on the chart below. This behaviour underlines the momentary balancing of the underlying market pressures and is commonly associated with potential formations of new directional swings in either direction. Hence, a new massive breakout or breakdown could be anticipated to emerge shortly.
Crude Oil 1D Price Chart. Image source: Trendsharks ©, created with TradingView.com
The MACD is demonstrating moderately rising bullish momentum, but it is also nearing a crucial turning point – the 0.00 level. As it is well-known, such levels have psychological importance in the market, as they can prompt traders to act on them as the market nears them. Consequently, it is not uncommon for the underlying equilibrium between the buying and selling pressures to be distorted around such level, thereby changing the direction of the price action. Overall, it seems that both the MACD and the RSI indicate the very probable formation of a new substantial breakout or breakdown out of the current range's boundaries in the near term.
To top it all off, the price action is consolidating just above the 38.2 per cent Fibonacci retracement level at 25.00 and below the major resistance level at 30.00. This narrow range currently coincides with the downwards sloping channel's upper boundary, which further underscores the major crossroads that the underlying price action finds itself on.
If the short term bullish momentum manages to persist, thereby driving a new breakout of the price above the major resistance level at 30.00, the next likely target for the newly forming bullish trend would be the 61.8 per cent Fibonacci retracement level at 40.53. Conversely, a rebound from the channel's upper edge would indicate the likely formation of a new bearish downswing, which could fall as low as the 23.6 per cent Fibonacci retracement level at 15.40 before it finds support.
2. Production Cuts Likely to Affect Aggregate Supply Shortly:
Recently, Saudi Arabia announced new rounds of oil production cuts, and its decision has been ratified by other members of OPEC+ as well. Overall, the organisation has agreed to reduce its aggregate production by over 1.2 million barrels per day, which is in addition to the nearly 10 million barrels, which were already agreed-upon during the organisation's previous meeting.
The market has so far been slow to react to such developments in the past, which means that several more days may have to pass before the market starts pricing in the aggregate supply reductions. However, these cuts are very likely further to bolster the underlying bullish momentum in the market. Consequently, this makes the formation of a new breakout above the aforementioned range's upper limit seem more likely than the establishment of a new breakdown.
3. Short Term Outlook:
Crude Oil 4H Price Chart. Image source: Trendsharks ©, created with TradingView.com
As can be seen on the 4H chart above, the underlying momentum in the short run is currently indecisive, which means that it could proceed in either direction. Meanwhile, the price action is indeed consolidating within an extremely narrow range, just above the 23.6 per cent Fibonacci retracement level at 25.00.
The prevailing indications favour the continuation of the broader bullish trend's development further north; however, this does not preclude the possibility for the emergence of short-term fluctuations to or below that level. False breakdowns are likely to form due to the likely execution of multiple short orders around the upper boundary of the aforementioned downwards sloping channel.
The hourly chart below reveals the existence of a minor ascending channel in the very short term. Any decisive breakout or breakdown outside its boundaries would likely provide traders with the first major indication highlighting the emergence of the highly anticipated new directional swing.
While the price action remains contained within the boundaries of the channel, however, range-trading strategies can be implemented utilising the Stochastic RSI's swift changes.
Crude Oil 1H Price Chart. Image source: Trendsharks ©, created with TradingView.com
4. Concluding Remarks:
Overall, the price of crude oil is set to form a new major trend in either direction. The underlying fundamentals seem to favour the emergence of a new bullish trend, given the recent decision of OPEC+ members to increase the scope of their production cuts further.
At any rate, the transition of the underlying market environment from its current range-trading state to having a distinctly trending outlook is likely to be marked by rising sporadic price action. Hence, the very likely formation of false breakouts and false breakdowns is to be anticipated by traders.
Profit & Loss
Journal Entries
May 21, 2020 - Entry 1
USOIL 1H Price Chart. Image source: Trendsharks ©, created with TradingView.com
- The analysis demonstrated a perfect trend-continuation trade, however, it missed the beginning of the new markup. The above scenario demonstrates the importance of corrections during the emergence of a new trend. Chiefly, the opportunity to buy into an uptrend at the lower end of a bearish correction, or to sell into a downtrend at the peak of a bullish correction.
Disclaimer: Your capital is at risk! Trading and investing on the financial markets carries a significant risk of loss. Each material, shown on this website, is provided for educational purposes only. A perfect, 100% accurate method of analysis does not exist. If you make a decision to trade or invest, based on the information from this website, you will be doing it at your own risk. Under no circumstances is Trendsharks responsible for any capital losses or damages you might suffer, while using the company’s products and services. For more information read our Terms & Conditions and Risk Disclaimer.
Over the past few weeks, the USD has lost nearly 800 pips against the JPY, driven by Japan's shift away from decades of negative interest rates. With the Bank of Japan raising rates for the second time in a row, investors are adjusting their positions to [...]
Despite its volatility, Silver remains in an uptrend. While not as dynamic as Gold, XAG often mirrors XAU’s movements. A Multiple Top has formed around $32.50, and history shows that the more a level is tested, the weaker it becomes, increasing the likelihood of a [...]
A combination of factors, including Trump-era tariffs, the emergence of DeepSeek, and a slowdown in GDP growth, has contributed to the recent pullback in the US30 from its record highs. From a technical standpoint, a Double Top pattern has formed around the [...]
Over the past month, Silver has experienced an impressive 13% surge, marking a strong bullish trend. Despite notable volatility and multiple pullbacks, the overall momentum remains firmly to the upside. This strength is further validated by the Golden Cross, a historically reliable [...]
The Swiss Stock Market has been on a remarkable rally, surging over 15% between December and January. At times, the price action resembled a near-vertical ascent. However, following the announcement of Trump’s tariffs over the weekend, Monday’s trading session opened with a [...]
Between October and January, GBPUSD experienced a significant decline, dropping by approximately 1300 pips. However, we now observe signs of a potential trend reversal. Over the past few weeks, the pair has rebounded by more than 400 pips, shifting momentum toward a [...]
For the past 1 month, the UK100 saw a fantastic 600 point rally! The occasional corrections only attracted more buyers, which is healthy for the current up trend and the RSI currently exhibits elevated demand. A 130 point correction started last week on Friday, dipped below the [...]
Over the past two weeks, Japan’s leading stock index surged 2,000 points, reflecting strong bullish momentum. However, this week saw a sharp sell-off, erasing nearly all gains since mid-January. Despite this drop, the decline stalled at the 61.8% Fibonacci retracement, a key [...]
There is a clear shift in the momentum in the Oil market, with the commodity dropping with nearly 10% for the past 2 weeks. The Death Cross, a classic sell signal, is indicating that sellers are indeed in control and we are lookin now at a strong [...]
The 350 pip rally for the past 2 weeks seems like a trend reversal for EURUSD, with buyers back in control. The strong bullish momentum is also confirmed by the Golden Cross, a historic buy signal. Corrections are healthy for the trend and we currently looking at [...]
For the past 2 weeks GBPUSD went up with 400 pips and this is why we believe we might be looking at a trend reversal. The strong bullish momentum is confirmed by the Golden Cross, a classic buy signal, which supports the hypothesis that [...]
The Death Cross formation in USDJPY signals a robust downward momentum, with the USD depreciating by 300 pips over recent weeks. Further declines exceeding 300 pips are anticipated, potentially reaching the 152.00 level. Despite several corrective pullbacks, the price has been unable to surpass the [...]
Following the formation of a Double Top pattern at the 21,930 level last Friday, the NASDAQ has experienced a significant decline, plummeting by nearly 800 points. This downturn has been primarily driven by unfavorable manufacturing data emerging from China, alongside the Bank of Japan's interest rate hike on Friday. The market reaction closely resembles the [...]
GOLD's uptrend has regained strength, with several factors supporting further gains. The RSI bounced from oversold levels and now stands at 65, signaling growing demand and increasing buying volume. Additionally, the appearance of a [...]
For the past few months, USDJPY gained 2100 pips! Then, about 10 days ago the USD started dropping and so far corrected with 300 pips, dropping down to 155.00. A local Double Bottom got formed and this level also aligns with the important [...]
For the past week, the US100 has surged by over 1,000 points, signaling strong bullish momentum. The RSI stands at 69, indicating high demand and buyer dominance. A bullish Golden Cross pattern has emerged, confirming the upward trend. Despite a brief correction yesterday, with the index dipping to [...]
The Descending Triangle on the 4-hour chart, typically a bearish signal, failed to materialize this time. Instead, the Triple Bottom support at 92,000 held strong, driving significant buying volume. A Golden Cross—a classic bullish indicator—confirms strong [...]
After a 300-point correction from its December highs, the SP500 appears to be rebounding as bulls regain control. This recovery is supported by positive economic data, including strong NFP numbers, low unemployment, and CPI readings meeting expectations—all favorable for stocks. Additionally, the earnings season began yesterday with [...]
For several months, the EUR has been trending downward, losing hundreds of pips. While occasional corrections to the upside occur, bears remain in control. The strong downward momentum is highlighted by the Death Cross pattern, a classic sell signal. Yesterday, we observed another [...]
The Dollar remains strong, with buyers firmly in control since the Fed's December comments hinting at fewer 2025 rate cuts. This drove a 400-pip rally in USDCAD, now facing resistance near 1.4450 as early buyers take profit. Corrections are part of healthy trends, and the pair is testing support at [...]
Today is CPI day, and technical analysis often falters on major news days. Nevertheless, here's our take on the US Tech 100: we anticipate a potential drop of 800-1,000 points. December's Fed comments triggered a selloff, with bears dominating the index for weeks. The strong downward momentum aligns with [...]
