The price of West Texas Intermediate oil is trading back under slight pressure following a rejection from the $64.00 level, and some near-term negative fundamental headwinds towards the oil market.
Last week US crude oil stockpiles unexpectedly came in much higher-than-expected, with both the Energy Information Administration and American Petroleum Institute reports confirming the build-up in supply.
News headlines coming in from India are also proving to be a big drag on oil prices right now. A record increase in COVID-19 cases and horrific scenes of death and burials coming from the media continue to spook oil traders.
This is significant in the near-term because India is one of the world’s largest oil users, behind only the United States and China. Should we see more severe lockdowns in India, then the economic activity of over 1 billion people could severely slow.
Just to top-off the negative development, Japan also went into a state of emergency last week. This is also important, because Japan is world’s fourth largest oil importer, so again, demand for oil is only likely to wane.
Last month WTI oil broke its four-month winning streak and has subsequently been batted back down to $60.00 level, leaving it exposed to month end selling. It is possible that traders may sit on the fence until the next OPEC meeting.
With the latest bearish developments OPEC may be forced to roll back any plans to increase production, although it could be a close call with the US and China performing well.
It is possible that the price of WTI oil could remain capped below the $64.00 benchmark level and be set for more losses. Looking at the bigger picture, it can certainly be said that the oil market may need to see strong demand return before a sustainable bid above $64.00 takes hold again.
Market sentiment towards WTI oil remains extremely bullish, with some 70 percent of traders holding a positive outlook. This is a large one-way sentiment skew, and it suggest that crude oil could falter further. With the fundamentals and sentiment diverging, it is hard to imagine retail traders winning this battle.
WTI Oil Short-Term Technical Analysis
The four-hour time frame shows that WTI oil has moved back towards the $20.00 level, however, a head and shoulders pattern continue to loom over WTI oil, with bears needing to hold the price below the $57.80 level to activate the bearish price pattern.
It is noteworthy that the overall size of the price pattern is highlighting that a price decline of some $10.00 could take place if the price starts to break neckline support.
Overall, watch out for a major decline in oil prices if weakness starts to take hold below $60.00, and finally neckline support, around the $57.80 level.
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WTI Oil Medium-Term Technical Analysis
Looking at the daily time frame some alarming technical developments are taking place, which hint that heavy losses could occur if sellers take control below the $60.80 level.
A key rising trendline, which basically denotes the entire recovery from last year’s all-time lows, where crude turned negative, is found around $57.80. Weakness below this key trendline exposes $55.00, and possible $53.00.
To top it all off, the Parabolic SAR indicator is issuing a sell signal. Bulls need to hold the price above the $63.00 level to encourage the notion that medium-term bulls are back in control.
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