Oil’s Rally Receives A Storm Warning

The short-term technical picture for crude oil’s rally gets even more cloudy following overnight inventory data.

Oil prices spiked higher initially overnight to test the week’s highs before an unexpected rise in the EIA Crude Inventories, pulled the rug from under oil’s feet. Both Brent and WTI gave back all of their gains to close unchanged at 63.70 and 56.70 respectively. With crude inventories rising 2.24 million barrel rise against an expected -1.56 million drawdown, traders will be pinning their hopes that the ongoing Saudi Arabia situation will continue to sustain this week’s rally.

The charts are most definitely giving cause for concern as we enter the end of the week. Both contracts have now traced out technical topping formations and have been unable to push higher from Friday and Monday’s rallies. The Relative Strength Indices on both continue to remain at very overbought levels adding more concern that a possibly quite aggressive corrective pullback could be imminent.

Brent crude is unchanged at 63.65 this morning. It has traced out at the daily double top at 64.80, and along with Monday’s nearby high of 64.60, this is now a formidable area of resistance. Support appears initially at 63.00 and then 62.40 with a break implying Brent could drop back to the 60.00 area.

Brent Crude Daily

WTI spot is also unchanged, trading at 56.70 in early Asia. Its rally to 57.80 and then subsequent drop to 56.20 has traced a bearish outside reversal day formation. WTI has topped out this week in the 57.45/57.80 zone; the technical outlook is painting a very cautious picture in the short-term. Support is initially at 56.20 with a break opening a drop to 55.45. A break suggests a deeper correction to 53.70, multiple daily lows and also trendline support, could well occur.

WTI Crude Daily

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific, from 2016 to August 2022
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley was OANDA’s Senior Market Analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV and Channel News Asia as well as in leading print publications such as The New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

Latest posts by Jeffrey Halley (see all)