WTI Oil Prints Evening Star Pattern; Further Downside Ahead?

WTI Oil Price, Charts and Analysis:

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Crude Oil has struggled since a bullish start to the week as technical and fundamental factors form a perfect cocktail. The Chinese Lunar Holidays coupled with some economic and demand concerns have kept oil prices on the back foot.

There have been a host of factors that could be attributed to the decline in oil prices this week. The optimism around a demand surge from China remains on hold following the Chinese holidays this week while rumors around Chinese companies helping the Russian war effort have further dampened the spirit of oil bulls. Should the rumors prove true this could heighten the already strained relations between the US and China which could affect the potential demand surge expected out of China.

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Oil inventories continue to build as evidenced by the API crude oil stock data which showed growth for a fourth consecutive week. This came about as Reuters (citing five OPEC+ sources) announced that the Joint Ministerial Monitoring Committee (JMMC) ofthe Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, known collectively as OPEC+,is unlikely to recommend any changes to oil output policy, fueling fears of excess supply.

Later in the day we have the Energy and Information Administration (EIA) oil stock report due which will be of particular interest given the API data released. Markets will no doubt be looking for confirmation of the API data which could see oil prices fall further and back below the $80 a barrel mark.

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From a technical perspective, WTI printed a 7-week high on Monday before finding resistance at the 100-day MA. Yesterday saw the daily timeframe complete an evening star pattern hinting at further downside below the key $80 a barrel mark. A daily candle close below the $80 mark could open up a retest of the trendline and 50-day MA which rests around the $78 a barrel mark. A daily candle close below the $79 mark will see price action turn bearish as we currently remain bullish overall on the daily timeframe.

WTI Crude Oil Daily Chart – January 25, 2022


Source: TradingView


IGCS shows retail traders are currently Long on Crude Oil, with 64% of traders currently holding long positions. At DailyFX we typically take a contrarian view to crowd sentiment, and the fact that traders are long suggests that Crude Oil may continue to fall.

Written by: Zain Vawda, Market Writer for DailyFX.com

Contact and follow Zain on Twitter: @zvawda

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