WEEKLY FORECAST FOR WTI OIL: DOWN SLIGHTLY
- Oil prices have been rising in recent days, but the rally may soon start to fade
- If the fix in the field of actions deepens, we could reach a point where everything sells out, including most commodities
- The FOMC meeting could become a bearish catalyst for all risk assets in the coming week
Most read: Oil price sensitive to RSI sell signal amid rising US inventories
Last Friday, when oil (WTI) was trading close to the dollar84 handle, I discussed the possibility of a brief decline. From these levels, raw briefly rose to $87.90, but then quickly fell to $82.81followed stock market weakness, before rebounding and settling around $84.75 just before the weekend.
For the the coming days, I am still inclined to believe that we are due to a temporary setback. Although the medium-term outlook for oil is indisputable bullish due to supply and demand imbalances, recoveries do not always follow a straight line and The WTI has up more than 35% from the December low.
At the same time, sentiment has deteriorated significantly on Wall Street recently on the nervousness of the Fed and concerns about the slowing economy. If the correction seen in the equity universe were to deepen, we could reach a point where everything sells off, including most commodities.
The bearish scenario could player after next Wednesday’s FOMC decision. Although no change in interest rates is expected, the central bank could provide insight into the tightening cycle in the face of runaway inflation. If policymakers remain overly hawkish, investors could start pricing in in a policy mistake, getting scared and dumping all sorts of risky assets, triggering a retracement in both WTI and Brent, although any downward movement is likely to be temporary.
Finally, with WTI nearing $85 a barrel, the White House could soon begin discussing new measures to curb rising prices, such as a possible export ban. While no measures to halt international shipments are likely to be implemented, just talking about it could trigger a sharp downward move in crude oil..
Turning our attention to technical analysis, WTI is now testing key resistance near the psychological level of $85.00. If the buyers are rejected from these levels, we could see a pullback towards the support at $83, although a dip below this floor could accelerate the decline and open the way to a fall around $81.50, correct before the $80 zone come stakes.
Alternately, if the bulls charge higher and manage to push the price above $85.00, the yearly high at $87.90 would become the immediate upside target. Traders should watch this area very closely as a ascend above could attract new buyers and fuel a rally towards the next relevant resistance at $91.30, a level that has not been tested since September 2014.
CRUDE OIL TECHNICAL CHART
WTI Crude Oil chart prepared using TradingView
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—Written by Diego Colman, market strategist and contributor