WTI Faces Short-Term Downward Pressure After Breaking Weekly Low
Market Overview
Crude oil prices started the week under pressure, declining on Monday due to concerns over increased production from OPEC+ starting in October and signs of weakening demand in China and the United States, the world’s two largest oil consumers. OPEC+’s decision to raise output and reports indicating a slowdown in industrial activity in China and weak consumer demand in the U.S. are the primary factors exerting downward pressure on oil prices. The market is closely monitoring these developments, as they could signal a shift in the supply-demand dynamics that have supported prices in recent months.
Technical Analysis
On the four-hour chart, WTI crude oil is exhibiting a bearish trend, having started the week with significant selling pressure. Sellers have managed to push the price below last week’s low of 73.524, placing WTI on a clear downward trajectory. The break below the critical support level at 72.782, corresponding to the 127.2% Fibonacci extension of the previous upward swing, indicates a continuation of the downward momentum.
The next key support level to watch is 71.837, aligned with the 161.8% Fibonacci extension. Should this level fail to hold, further declines could target 70.795 and 69.108. The convergence of these technical levels suggests a strong bearish sentiment, underscored by the divergence of moving averages pointing downward and the positioning of momentum oscillators, which indicate that sellers are firmly in control of the market.
Oscillators Confirmation
RSI (Relative Strength Index): The RSI is in the bearish territory, reinforcing the downward momentum and suggesting that the selling pressure is likely to persist in the near term.
MACD (Moving Average Convergence Divergence): The MACD is also bearish, with both the MACD line and signal line moving lower, confirming the strength of the current downtrend.
Moving Averages: The alignment of moving averages further supports the bearish outlook, as the shorter-term moving averages are below the longer-term ones, indicating that the path of least resistance remains to the downside.
Alternative Scenario
If buyers manage to reclaim the broken support at 73.524, attention will shift to the resistance at 74.566, which coincides with the overlap of the moving averages. A move above this level would suggest a potential short-term reversal. The key resistance at 76.253 would then come into focus, with a break above this level signaling a possible shift to a bullish trend in the short term.
Key Levels
Resistance Levels:
- Resistance 4: 76.253
- Resistance 3: 74.566
- Resistance 2: 73.524
- Resistance 1: 72.782
Current Price (at the time of analysis): 72.431
Support Levels:
- Support 1: 71.837
- Support 2: 70.795
- Support 3: 69.108
Key Events to Watch
The U.S. and Canadian markets are closed on Monday due to holidays, leading to reduced trading volumes. This low liquidity environment could exacerbate price movements in either direction. Looking ahead, the weekly U.S. crude oil inventory report on Wednesday and the Energy Information Administration (EIA) inventory report on Thursday will provide further insights into demand levels.
An increase in weekly inventories could signal weakening demand, potentially putting additional pressure on oil prices. Conversely, a significant drawdown in inventories, especially one that exceeds forecasts, could indicate strengthening demand and lead to positive price movements.
Conclusion
WTI crude oil is currently facing significant downward pressure after breaking below last week’s low, with technical indicators and key support levels pointing to further potential declines. However, market participants should remain cautious, as low trading volumes due to public holidays could lead to heightened volatility. The upcoming inventory reports will be crucial in shaping the market’s short-term direction, providing clearer signals about the underlying demand dynamics. Traders should closely monitor these reports and technical levels to gauge the next move in the oil market.