Crude Oil Price Update – Overcoming Opening at $32.87 Could Trigger Massive Short-Covering Rally

U.S. West Texas Intermediate crude oil futures plunged nearly 30% on Monday after Saudi Arabia slashed prices and set plans for a dramatic increase in crude production in April. At its lowest level, the U.S. futures contract was set up for its biggest loss on record.

Prices plunged following Saudi Arabia’s move to start a price war after Russia passed on an OPEC+ plan to make steep output cuts to offset the loss of demand due to the coronavirus outbreak.

At 08:27 GMT, May WTI crude oil is trading $32.39, down $9.12 or -21.97%. Earlier in the session, the market hit a multi-year low at $27.83.

Since hitting its low, crude oil has clawed back nearly all of its losses following its opening at $32.87. This doesn’t change the narrative, but it may be an indication that buyers may have found value.

Daily Technical Analysis

The main trend is down according to the daily swing chart. The downtrend was reaffirmed on the opening when prices took out Friday’s low at $41.29. Due to a gap opening, this price is the top of the gap.

The May futures contract continuous chart shows the market’s 2016 bottom at $29.85 has played a role in both directions today. Earlier in the session, the market plunged to $27.83 when this level was broken. Later in the session, crude oil rallied when buyers overtook this level.

Daily Technical Forecast

Based on the early price action and the current price at $32.39, the direction of the May WTI crude oil futures contract the rest of the session on Monday is likely to be determined by trader reaction to $29.85.

Bearish Scenario

A sustained move under $29.85 will indicate renewed selling pressure. If this creates enough downside momentum then look for a retest of the intraday low at $27.83. Taking out this level with another wave of fresh selling pressure could trigger an acceleration into the 2000 low at $21.37.

Bullish Scenario

Holding above $29.85 will signal the presence of buyers. Overcoming the opening at $32.87 could agitate short-sellers enough to aggressively cover their positions. At this point, those who sold the opening will be holding losing positions.

The short-covering could increase if buyers overcome the high of the session at $33.92. Taking out this level will drive the market into the gap. At this point, the next move in the market will be determined by momentum. If momentum shifts to the upside and shorts continue to cover aggressively then look for the rally to extend into $41.29 to $41.51.

Side Notes

Pay attention to how traders react to today’s opening at $32.87. This could set the tone for the rest of the session.