Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
WTI Crude Oil (NYMEX: CL) faced a significant downturn recently, experiencing an over 2% decline on Thursday to add to Wednesday’s session declines of 5.6%, the most significant one-day drop since Sept. 23, 2022. This sharp decline followed a series of concerning developments in the oil market. Firstly, the latest report from the U.S. Energy Information Administration (EIA) revealed a substantial increase in gasoline inventories and a notable collapse in gasoline demand, exacerbated by soaring retail gasoline prices nearing $4 per gallon nationwide, with four-week average demand reaching its lowest point since 1998.
Additionally, the potential lifting of Russia’s diesel ban added further downward pressure on oil prices. Furthermore, growing global economic concerns contributed to the sell-off, as weak U.S. economic data and falling yields raised worries of a slowdown. The U.S. jobs growth has been slowing for three consecutive months, adding to the uncertainty. This situation prompted short sellers to enter the market, speculating that the Federal Reserve would maintain steady interest rates in the face of energy-price inflation.
Despite these demand-related concerns, OPEC+ decided to maintain its current oil output policy, consistent with Saudi Arabia and Russia’s decision to continue voluntary supply cuts through the end of the year.
Technical Analysis:
WTI Crude Oil’s current price stands at $82.55/BLL as bears attempt to maintain their short-term dominance. Price action is trading well below the downward-sloping 20-EMA (green line), 50-EMA (blue line), and 100-EMA (red line). The 20-EMA has recently crossed below both the 50-EMA and 100-EMA, all of which are sharply declining.
The Relative Strength Index (RSI) is in oversold territory with a reading of 39.76, and the RSI-based Moving Average (M.A.) is declining at 34.86.
Short-term trading opportunities could emerge if the price action sustains a push lower, with the $81.37/BLL support level as the initial target. A break below this support level could lead to testing the $79.58/BLL level, followed by the $77.58/BLL as the next significant support.
However, if there is a failure to sustain the downward push, short-term trading opportunities towards the initial resistance at $84.92/BLL may arise. A successful break above this resistance level could potentially bring the $87.83/BLL and $89.59/BLL resistance levels into play in the short term.
Summary:
WTI Crude Oil has experienced significant recent declines due to concerns over weakening demand, rising gasoline prices, and the potential easing of Russia’s diesel ban. Despite these headwinds, OPEC+ has opted to maintain current oil output policies, which could provide some reprieve for oil.
With the technical picture remaining bearish, with price action well below key moving averages, the $81.37/BLL and $79.58/BLL support levels are likely to act as levels of significance should the momentum persist. However, a rebound could offer trading opportunities towards the $82.92/BLL resistance level.
Sources: TradingView, Trading Economics, Bloomberg, The Business Times.
