Crude Oil Wave Analysis – There Should Be a Correction

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Published: Jan 26, 2022, 12:25 UTC

Crude was in an uptrend since the ease of travel restrictions globally. Even the Omicron variant plaguing the world doesn’t stop the profit-hungry travel industry, which has been struggling during the pandemic.

Brent got closer to the $90 per barrel checkpoint closer last week than it was in the past 7 years. Supply shortages, attacks on Saudi oil rigs are considered to be the main drivers of crude oil’s uptrend. OPEC’s monthly oil report highlighted the increasing demand for crude oil this year, yet the organization called to keep the production at current levels.

Hence, the increasing demand with a steady supply motivates the oil price to climb higher. It has also been said that despite Omicron being highly sustainable to nowadays vaccines and being highly contagious, many scientists sealed it as “not dangerous”, which encouraged tourists and travelers to head to a journey. Yet, this variant is not completely studied, we can still expect surprising discoveries.

However, increasing oil prices along with the high pace of rising inflation could cut the demand rapidly. Oil is considered to be the second-largest expense for all airlines, after labor. “Higher jet fuel prices lead to higher ticket prices,” United CEO Scott Kirby told CNBC. Hence, to withhold the oil crisis, OPEC might as well reconsider the production in February.

Indeed the higher the price the more profit oil-producing countries make but with the inflation growing so fast globally, keeping the oil prices as is will lead to a severe drop in demand.

From the technical analysis point of view, a correction is discernible. Crude, in this case, Brent oil, is extremely overbought on all time-frames, especially on a weekly chart.

Taking a closer look at the chart you might notice a divergence between the price action and the RSI movement. MACD has also been performing theatrically since April 2021, signal and MACD lines are since then heading downwards, whereas the price is heading upwards. The same is noticed with RSI, which in technical analysis signals a steep correction ahead. Brent oil is completing a 5-wave move finishing the expanding diagonal formation.

To finish the month with a high profit before the next OPEC meeting Brent might climb up to $92 where it will face high pressure and head towards a correction. To stabilize the supply and demand by the start of the tourist season, I believe Brent will continue correction down to 76.3 and 72.8.