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James Hyerczyk
WTI Crude Oil
Oil barrel in water. price oil down.

U.S. West Texas Intermediate crude oil futures fell for the fourth time this week, weighed down by demand concerns as COVID-19 cases swelled globally and fresh lockdowns were to start in Europe’s two largest economies. Traders were also concerned that rising output from Libya and the United States, when coupled with a possible trimming of production cuts by OPEC+, would eventually create a global supply glut.

At 20:07 GMT, December WTI crude oil futures are trading $35.66, down $0.51 or -1.41%.

“Many nations with high oil consumption across the world are seeing infection levels that they didn’t have even during the first wave,” said Paola Rodriguez-Masiu, Rystad Energy’s senior oil markets analyst.

“These infection levels are destined to bite oil demand, as traffic will be curbed to a minimum during the coming lockdowns.”

Daily December WTI Crude Oil

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. The next downside target the May 28 main bottom at $33.53.

The main trend changes to up on a move through $41.90. This is highly unlikely, but due to the prolonged move down in terms of price and time, the market is inside the window of time for a closing price reversal bottom.

The minor trend is also down. A trade through $39.83 will change the minor trend to up. This will shift momentum to the upside.

The main range is $25.31 to $44.33. Its retracement zone at $34.82 to $32.58 is the primary downside target. This zone was almost tested on Thursday, but the selling stopped at $34.92.

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Short-Term Outlook

In my opinion, $34.82 to $32.58 represents a value area. If you’ve charted the markets long enough, you would’ve probably seen this chart pattern hundreds of times. It is very common.

The rally started at $25.31 when OPEC+ decided to cut production by 9.7 million barrels per day. Helping to generate some of the upside momentum was the belief that authorities would eventually contain the coronavirus.

The market hit its high in late August when OPEC+ agreed to start trimming their production cuts. This put a little more supply into the market. U.S. producers also started to up the number of producing rigs.

The market started to freefall the last two weeks as Libya ramped up production, and COVID-19 cases began to rise around the world.

The reason the rally started is still intact. OPEC+ is cutting production. The nearly 50% correction of the rally signals that fears of demand destruction are encouraging traders to sell crude oil.

OPEC+ can’t do anything to stop the spread of the coronavirus, but the can control the supply by altering the production cuts. We think they are going to do this at about the same time the market trades $34.82 to $32.58.

Furthermore, a break below $32.58 will give OPEC and its allies even more incentive to announce their change in plans.

I think the market is close to a bottom, but it needs OPEC+’s help to stop the selling.

For a look at all of today’s economic events, check out our economic calendar.
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