Crude Oil Price Update – Strong Dollar Pushing Market into Major Value Zone at $72.31 – $63.73

U.S. West Texas Intermediate crude oil futures finished sharply lower on Tuesday as the U.S. Dollar firmed late in the session. The price action suggests investors shrugged off the potentially bullish impact of a price cap placed by the European Union on Russian oil and the prospects of a demand boost in China due to the easing of COVID-19 restrictions.

On Tuesday, January WTI crude oil futures settled at $74.25, down $2.68 or -3.48%. The United States Oil Fund ETF (USO) closed at $65.22, down $2.50 or -3.70%.

The U.S. Dollar strengthened into the close on bets of higher interest rates by the Federal Reserve than recently forecast. A stronger greenback tends to make dollar-denominated oil more expensive for foreign buyers.

China’s gradual COVID-19 easing is a tentatively positive development although more has to be done by the government to truly lead to renewed demand.

Traders are also weighing the potential impact of the ban on Russian oil. On paper it looks bullish because it is likely to reduce crude exports by 500,000 bpd from February levels.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. The trade through $73.60 on Tuesday reaffirmed the downtrend. A move through $83.34 will change the main trend to up.

The nearest support is a long-term 50% level at $72.31, followed by a long-term Fibonacci level at $63.73. The nearest resistance is a Fibonacci level at $78.72, followed by $84.43.

Daily Swing Chart Technical Forecast

Trader reaction to $74.25 is likely to determine the direction of the January WTI crude oil market on Wednesday.

Bearish Scenario

A sustained move under $74.25 will indicate the presence of sellers. This could lead to a test of $72.31. This level is the top end of an extremely important retracement zone. If it fails to attract buyers, prices could collapse all the way to the lower level at $63.73.

Bullish Scenario

A sustained move over $74.25 will signal the presence of buyers. If this creates enough upside momentum then look for a surge into $78.72. Overtaking it will indicate the buying is getting stronger with the resistance cluster at $83.34 – $84.43 the next key target.

Side Notes

Watch the price action and read the order flow on a test of $72.31 – $63.75. This is a major value zone so I wouldn’t be surprised if a support base forms inside this area.