Talking Points on Oil Prices As US inventories contract for the eighth week in a row, the price of oil continues its recovery from the weekly low ($70.76), but recent price action warns of a wider correction as it extends a run of lower highs and lows from earlier this week.
Advertisement
The Oil Price Rebounds as US Inventories Fall for the Eighth Week
The price of oil is attempting to retrace its losses from the year’s high ($76.98) as US inventories fell 6.866 million in the week ending July 2 after narrowing 6.718 million the week before, and the data may encourage the Organization of Petroleum Exporting Countries (OPEC) to draw up a new production adjustment table as the outlook for consumption improves.
As a result, impending OPEC events are likely to influence crude prices, with Secretary General Mohammad Barkindo insisting that “the date of the next meeting will be announced in due time” after canceling the Joint Ministerial Monitoring Committee (JMMC) meeting scheduled for July.
However, according to new figures from the Energy Information Administration (EIA), weekly field production increased to 11,300K from 11,100K during the same period, the highest level since May 2020, and the increase in US output could spark more dissent within OPEC as output approaches pre-pandemic levels.
As OPEC and its allies struggle to find common ground, a further recovery in US supply may create headwinds for crude, and recent price action warns of a deeper correction as the price of oil extends the series of lower highs and lows from earlier this week.
With that said, the Relative Strength Index (RSI) shows a similar dynamic as it falls back from overbought territory to indicate a textbook sell signal, and it remains to be seen whether the pullback from the yearly high ($76.98) will turn out to be a correction in the broader trend or a potential shift in market behavior, as the price of oil appears to have reversed course after clearing the 2018 yearly high ($76.98).
Daily Oil Price Chart
Trading View is the source of this information.
Keep in mind that crude broke out of its range bound price action in the third quarter of 2020, establishing an upward trending channel, with the price of oil surpassing the 2019 high ($66.60), as both the 50-Day SMA ($68.65) and the 200-Day SMA ($55.49) produced a positive slope.
Although the recent rally has removed the threat of a double-top formation, oil appears to have reversed course after breaking through the 2018 high ($76.90), with the Relative Strength Index (RSI) highlighting a similar dynamic as it falls back from overbought territory to signal a textbook sell signal.
A break/close below the Fibonacci overlap at $70.40 (38.2 percent expansion) to $71.50 (38.2 percent expansion) might trigger a bigger decline in crude, with a move below the 50-Day SMA ($68.65) opening up the $65.40 (23.6 percent expansion) level.
At the same time, a lack of momentum below the Fibonacci overlap around $70.40 (38.2 percent expansion) to $71.50 (38.2 percent expansion) may jeopardize the recent series of lower highs and lows in the price of oil, with a move above the $74.40 (50 percent expansion) region bringing the $76.90 (50 percent retracement) area back on the radar.
—- Currency Strategist David Song wrote this article. @DavidJSong is my Twitter handle./n
Read More
