Oil and Natural Gas Technical Analysis: Oversupply Risks Rise as Key Support Levels Come Into Focus

Oil prices slightly dropped on Tuesday after a short rally on Monday. This drop was preceded by a sharp correction in the precious metals, which affected the commodities as a whole. Brent oil (BCO) and WTI crude oil (CL) both consolidate in a tight range despite increased geopolitical tensions.

Fears of supply disruption had propelled the rally in oil after Russia accused Ukraine of attempting to bomb President Putin’s residence. Kyiv denied claims that there was an attempt to derail peace talks. However, markets are still sensitive to the Russia-Ukraine situation and broader risks in the Middle East, including the possibility of a U.S. response towards Iran and Hamas.

Looking forward, supply issues may take a back seat to fundamentals. Saudi Arabia is likely to reduce its February crude prices for Asia as a result of oversupply. At the same time, projections indicate that 1.8 million barrels per day more oil may be produced in the global oil market than is needed in 2026. This bulging surplus could pressure prices into the first quarter.

Crude Oil Technical Analysis

The daily chart for WTI crude oil shows prices moving within the long-term support zone between $55 and $60. These swings represent market uncertainty when prices are finding a direction. The 50 day SMA is still below the 200 day SMA, which confirms that the overall trend is still negative.

A firm break above $65 is required to see this bearish momentum negated and send the price upward. Conversely, a break below $55 would likely open up the door to a sharp decline in oil prices into 2026.

The 4-hour chart for WTI crude oil also shows the price compression in a descending wedge pattern. Immediate resistance is at the $59.50 level. A break above this level would likely see a move towards the $62 area. A further break above $62 would open the door for a rally towards $65.50. For now, short-term direction is uncertain as prices continue to swing within the descending wedge.

Natural Gas Technical Analysis

The daily chart for natural gas shows a strong price consolidation from the $4.50 to $3.80 price levels. The bullish breakout above the $2.60 to $2.70 zone reports good momentum. However, the price shows sideways movement, indicating that the price may fall even lower before the next upward move. Immediate support stands at $3.80. A break below this level could send prices towards $3.50 or lower.

The 4-hour chart of natural gas shows good consolidation below the $4.70 area. The overall price structure is bullish. A break above $4.70 could lead to a strong movement up. However, a break below $3.80 may cause prices to fall to the $3.50 area.

US Dollar Index Technical Analysis

The daily chart for the U.S. Dollar Index shows muted price action during the holiday season with thin liquidity. However, the overall structure is still pointing to a bearish trend. As long as the level of 100.50 remains a resistance, the index is likely to fall towards the level of 96.50 in the coming weeks.

The 4-hour chart for the U.S. Dollar Index indicates strong consolidation below the level of 99. The development of a double top near the 100.50 level indicates continued bearish momentum. The downward movement from 99 has opened the door for a move lower towards the 96.50 level.