The WTI futures (NYMEX: CL) are currently on the brink of a shift in momentum, following a notable upswing over the past week. Having enjoyed gains for six out of the last seven days, the futures are now hovering at three-week highs. However, the recent Energy Information Administration (EIA) inventory report has introduced an element of uncertainty. Despite expectations for a 2.283 million barrel reduction, the report revealed a surprising 2.909 million barrel increase in US crude stocks.
This unexpected development has introduced a potential risk of a pullback in the market. Interestingly, this comes amidst broader concerns about the supply environment, particularly in light of recent attacks on ships in the Red Sea that have posed threats to the supply chain.
Looking ahead, the dynamics of the US dollar will play a crucial role in influencing the price action of the futures. The upcoming release of the PCE Price Index on Friday, the Federal Reserve’s preferred measure of inflation, is anticipated to be a key factor in shaping the market direction. As we approach the end of the week, there is an air of anticipation, making the unfolding events in the energy market intriguing and potentially eventful.
On the 1D chart, a breakout seems imminent from the descending channel, with the futures recently pushing above the 25-SMA (green line) at $73.58/barrel (BLL). However, with declining volumes, the bears could still be enticed to enforce a pullback if the breakout fails to be sustained.
Resistance at $74.83/BLL could be the first hurdle to the breakout, followed by the 50-SMA (blue line) at $77.88/BLL. This level could be crucial in gauging the market’s sentiment, as a shift above could signal a sustainable uptrend toward $81.37/BLL, where the 100-SMA (orange line) convergences with the Fibonacci midpoint.
However, if the futures fail to remain above the 25-SMA support, the recent attempt at a breakout could fail. In this case, a pullback toward $72.58/BLL could occur to retest the breakout level. If the futures move back within the channel formation from this level, the supply zone near $67.94/BLL could be one to watch as the year concludes.
While the WTI futures have hinted at a channel breakout in recent sessions, demand concerns following the latest inventory report could put the gains at risk. Resistance at $74.83/BLL could be a pivotal level to watch as the market awaits the latest PCE data.
Sources: Koyfin, Tradingview
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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