Key Points:
- Oil prices should recover despite US inventories build.
- Ascending trend line should remain intact.
- EMA’s retain a bullish bias
Oil is setting up for a technical reversal in the coming sessions which might come as somewhat of a surprise given the recent plunge in the spot price to $52.52 and decline in futures of around 2.3%. Specifically, despite the US having a record inventories uptick to 520.2 million barrels, the overarching consolidation pattern should remain largely intact which means upside potential could be back on the menu.
Notably, even with the substantial selling pressure following the US data release, downsides were capped at around the 52.35 handle. This comes predominately as result of that ascending trend line which has proven to be a rather reliable source of support since OPEC began its production freeze. However, the intersection of the 61.8% Fibonacci retracement with this trend line also reinforced support to a significant degree.
As a result of this impasse, a reversal seems to be the logical next step for oil prices. Indeed, a modest recovery would be broadly in line with the daily moving average bias which remains incredibly bullish despite the near constant threat that US oil poses to OPEC’s plan to lessen the global supply glut. What’s more, a move to the upside would help to alleviate the Stochastics which are trending into oversold territory as we speak.
However, it’s worth mentioning that any rallies are almost certainly going to remain beholden to the upside constraint of the triangle formation. More precisely, the interplay of the simultaneous optimism that OPEC can buoy crude prices and the pessimism that the US and Canada can offset much of the falling output also provides a fundamental explanation for why we can expect to see price action consolidate and narrow moving forward.
Ultimately, as both technicals and fundamentals are in line, we should see a nice technical reversal as the commodity seeks to return to its developing central tendency. However, also keep an eye on any reactionary moves from OPEC and Russia who could see this latest slip as evidence that the freeze is failing as this could see the agreement begin to unravel.