Crude Oil Crossroads Ahead as Markets Eye New Highs. Will WTI Overcome Resistance?

Crude Oil, WTI, Brent, OPEC+, Federal Reserve, EIA, API, Trend, Double Top – Talking Points

• Crude oil has been chasing new highs this week as supply cuts kick in
• OPEC+ production cuts appear to be having the desired effect
• The Fed may have paused but policy tightness might be with us for a while

The crude oil price paused in its recent rally overnight as the market weighs the impact of a tightening in supply against an uncertain outlook for the global economy.

The OPEC+ production cuts are estimated to see over 100 million barrels less in global supply through to the end of September.

The bullish run through July and to start this month was also assisted by perceptions that the Federal Reserve is nearing the end of its tightening cycle.

Interest rate markets are pricing no more rate hikes in the foreseeable future and are looking for a lower Fed funds target rate by the middle of next year.

The enthusiasm for less restrictive Fed policy was tempered somewhat going into Tuesday’s session after a couple of Fed speakers reiterated the higher for longer mantra.

Federal Reserve Bank of New York President John Williams noted that policy would need ‘to be kept restrictive for some time’ and was open to further hikes if warranted.

Additionally, Federal Reserve Governor Michelle Bowman said, “I expect that additional increases will likely be needed to lower inflation to the FOMC’s goal,”

Both speakers noted that incoming economic data will be crucial for upcoming policy meetings. The oil price retreated from challenging the April peak as the market digested their views.

The WTI futures contract has not traded above US$ 83.53 since November 2022 and has eased going into Tuesday, trading below US$ 82.50. The Brent contract has dipped under $86.00.

Inventory reports from the American Petroleum Institute (API) and US Energy Information Agency (EIA) will be closely watched this week for clues on the tightness of the crude market.

WTI CRUDE OIL TECHNICAL ANALYSIS SNAPSHOT

The WTI futures contract remains in an ascending trend channel despite backing away from a 4-month high yesterday.

That peak of 83.30 was just below the April high of 83.53 and has the potential to create a Double Top. A move above 83.533 would negate this bearish formation.

The price is currently residing in a resistance zone and a break above might confirm the continuance of the bullish run. However, if it is unable to overcome this area, a reversal could evolve.

On the downside, support may lie at the recent low of 78.69 which currently coincides with the 21-day simple moving average (SMA).

Further down, support could be at the breakpoint of 77.33 and the prior low at 73.82. The latter also has the 55- and 100-day SMA in the vicinity and may lend support

Support may lie at the breakpoint of 77.33, or the prior low of 73.82 which also coincides with the 100-day SMA. For information on trading oil markets, click on the banner above.

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCarthyFX on Twitter