WTI Crude Oil prices (NYMEX: CL) remain under pressure after a string of bearish factors emerged this week. Surging US Crude Oil inventories, as reported by the Energy Information Administration (EIA), defied market expectations and highlighted a potential supply glut. The unexpected rise of 1.825 million barrels effectively erased most of the previous week’s decline, raising concerns about overproduction swamping demand.
Further stoking these concerns is Russia’s announcement of an accidental overproduction issue. While they plan to propose solutions to OPEC+ to offset the additional barrels, the immediate impact adds to the bearish sentiment. Additionally, cautious minutes from the latest Federal Open Market Committee (FOMC) meeting dashed hopes of an imminent rate cut. The Fed’s wait-and-see approach to confirm a sustained easing of US inflation translates to a stronger US dollar, which can further weigh on dollar-denominated oil prices.
Technical Analysis
Despite a minor technical rebound attempt, the overall 4-hour chart for WTI Crude Oil remains tilted to the downside. The price action currently sits at $77.44/BLL, trading significantly below the key moving averages (SMAs) – the 20-SMA (green line), 50-SMA (blue line), and 100-SMA (red line). This bearish alignment indicates a downtrend is in control.
For a bullish reversal, a sustained push above all three SMAs, particularly the $80.04/BLL level, is crucial. Significant volume on such a breakout could signal a potential price rally towards the $82.46/BLL and $84.50/BLL resistance zones. However, the Relative Strength Index (RSI) at 38.91 sits firmly below the neutral 50 mark, amplifying the bearish bias.
A breakdown below the initial support level of $75.86/BLL, again with significant volume, could confirm the downtrend and open the door for further declines. Subsequent support areas to watch on the downside include $73.76/BLL and $71.40/BLL.
Summary
WTI Crude Oil faces headwinds from rising US inventories, potential Russian overproduction, and a hawkish Fed stance. The technical analysis reinforces the bearish sentiment with a price structure below key SMAs and a weak RSI. While a technical rebound might occur, a confirmed breakout above $80.04/barrel is needed to shift the momentum.
Sources: TradingView, Trading Economics, Reuters.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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