As always, the technical and fundamental picture for oil is both mixed and confused with a variety of factors playing out for the commodity over the last few days.
If we begin with the technical picture for the WTI daily chart there are several aspects to consider. First, and perhaps most significantly, Friday’s price broke through and held above the key resistance region at $58.00 per barrel and denoted with the heavy red dashed line. This is a level generated by the accumulation and distribution indicator for NinjaTrader which is based on the number of times a price has been tested, and in simple terms the thicker the line then the stronger that region of support or resistance is likely to be.
In this case, Friday’s price action tested this level and held once more on good volume. Now with the price firmly above, and beginning to move away from the volume point of control below, we have the potential for more upside momentum to develop. Staying with the technical picture for a moment, there are two other factors to note. First, on the volume point of control histogram to the right, the volume is falling away as we move towards the $60 per barrel region and beyond which will help oil prices to move higher in due course. Volume acts as a resistance in the same was as price and so as this declines the journey higher will be easier. Second, note the trend monitor indicator at the bottom of the chart which is transitioning to bullish blue.
Moving to the fundamental drivers, last week was one dominated by the OPEC meeting where producers agreed to deepen oil production cuts to a total of 1.7 million bpd, which duly helped oil prices to move higher. Since then, weaker than expected Chinese data has helped to ease prices lower on the expectation of falling demand. Nevertheless, with these cuts now agreed, assuming they are maintained, both the technical and fundamental indicators are suggesting the development of some bullish for momentum for oil with the WTI contract climbing to $60 per barrel and further higher in due course, with any further US dollarweakness adding its own unique influence to the market.