Crude Oil Price Update – Trader Reaction to $38.17 Pivot Sets the Tone

U.S. West Texas Intermediate crude oil futures are inching lower shortly after regular session opening on Monday as trader continue to assess the impact of Tropical storm Sally on production against a backdrop of bearish demand data.

The market was supported early in the session as Tropical storm Sally gained strength in the Gulf of Mexico west of Florida early Monday and was poised to become a category 2 hurricane. The storm is disrupting oil production for the second time in less than a month after hurricane Laura swept through the region.

At 12:05 GMT, December WTI crude oil is trading $37.86, down $0.22 or -0.58%.

Helping to cap gains is a report from OPEC that showed world oil demand will fall more steeply in 2020 than previously forecast due to the coronavirus and recover more slowly than expected next year, potentially making it harder for the group and its allies to support the market.

World oil demand will tumble by 9.46 million barrels per day (bpd) this year, OPEC said in a monthly report, more than the 9.06 million bpd decline expected a month ago.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through $37.11 will signal a resumption of the downtrend.

A move through $44.33 will change the main trend to up. This is highly unlikely, but we could see a confirmation of last week’s closing price reversal bottom on a breakout over $39.22.

The minor range is $37.11 to $39.22. Its 50% level or pivot at $38.17 has been controlling the price action the last three sessions.

The major downside target zone is $34.82 to $32.58. The short-term target zone is $40.72 to $41.57.

Daily Swing Chart Technical Forecast

Based on the early price action, the direction of the December WTI crude oil market the rest of the session on Monday is likely to be determined by trader reaction to the pivot at $38.17.

Bearish Scenario

A sustained move under $38.17 will indicate the presence of sellers. This could trigger a quick break into $37.11. Taking out this bottom could lead to an eventual test of the main bottom at $35.72, followed closely by the main 50% level at $34.82.

Bullish Scenario

A sustained move over $38.17 will signal the presence of buyers. Since it’s going to take a major shift in the fundamentals to trigger a rally into the nearest upside target at $40.72, any rally is likely to be fueled by short-covering so it may be short-lived.