Oil News: Crude Oil Analysis Sees Rebound Potential After Futures Erase Half the Rally

WTI Crude Oil Slides as Trump Peace Comments Rattle the Market

WTI crude oil futures are edging lower on Tuesday as traders continue to assess the impact of yesterday’s massive retreat from a four-year high at $119.48 and President Trump’s bearish comments.

WTI Crude Oil Retreats from Four-Year High — Is the Rally Over?

To put the price action in perspective, this rally began at $54.87 on December 16 and reached its highest level since March 2022 at $119.48. Its 50% to 61.8% retracement zone at $87.18 to $79.55 is currently being tested. Trader reaction to this zone is likely to determine the near-term direction of the market.

Key Price Levels Traders Are Watching Right Now

Yesterday’s range was $119.48 to $81.19. Its retracement zone is $100.34 to $104.85. This is today’s potential upside target.

A sustained move over $87.18 will indicate the return of buyers. If this move creates enough upside momentum then look for a potential surge into $100.34 to $104.85.

A sustained move under $79.55 will signal the presence of sellers. If this level is taken out with above average volume, the market could collapse into the trend line at $67.68.

Buy the Dip or Sell the Rally — What Speculators Are Thinking

The sell-off from $119.48 was dramatic, but if you strip away the hype, it was just a very common 50% to 61.8% correction. Typically, the first leg down from a major top is long-liquidation. Then there is a snapback rally back to the upside retracement zone target.

With the main trend up according to the trend line at $67.68, the swing bottom at $63.60 and the moving average support at $64.53 – $61.82, speculators are still in “buy the dip” mode. If the test of $87.18 to $79.55 is successful then there should be a rally back to $100.34 to $104.85.

If the market has truly topped then short-sellers should enter at $100.34 to $104.85 if they like the risk. If not, they may attempt to short closer to the swing top at $119.48.

In order to truly shift from ‘buy the dip” mode to “sell the rally” mode, traders have to form a potentially bearish secondary lower top. Otherwise, the market will remain in the strong hands of the buyers.

Trump’s Peace Comments Trigger Supply-Driven Sell-Off

Monday’s rally and subsequent sell-off were both supply related events. The rally was fueled by fears of lower supply if the war escalated and the Strait of Hormuz was shutdown for a prolonged period of time. The sell-off was triggered by comments from Trump who predicted the war in the Middle East could be over soon. Essentially, this would end the bombing of oil infrastructure and allow oil tankers to transit the Strait.

Trump’s statement was just a prediction, but it worked enough to calm the market. Nonetheless, he also said the war was “very far ahead” of his initial four-to five-week estimated timeframe. This is going to keep the market on edge.

Crude Oil Forecast — Watch the Retracement Zone for the Next Big Move

I don’t think we can say the top is in until I see how traders handle the expected retracement to $100.34 to $104.85. But once it’s officially declared over, I think we all got a taste of how fast it can return to normal levels.

More Information in our Economic Calendar.