Post-Breakout Follow-Through Disappoints Despite Holding Support
Light crude oil futures are edging lower on Monday after hitting their highest level since December 8 earlier in the session. We finally saw the breakout over the 50-day moving average at $58.57 on Friday that traders had been waiting for weeks, but today’s follow-through move was not too stellar, coming in only 3 cents above the previous high. However, the market is still holding above the moving average, leaving room for a potential run at $59.80 or higher.
At 11:30 GMT, Light crude oil futures are trading $58.59, down $0.53 or -0.90%.
Early Gains Fade After Initial Push to Multi-Week Highs
The main trend remains up according to both swing chart and moving average trend indicators. If upside momentum continues, prices could still reach key upside objectives, including the 50% retracement level at $60.70, the Fibonacci retracement level at $62.05, and the 200-day moving average at $62.45.
Upside Technical Targets Remain Intact Above Key Trend Indicators
If the 50-day moving average fails as support, the market could see a pullback into a pair of 50% retracement levels at $57.78 and $57.39.
Failure at 50-Day Moving Average Opens Door to Deeper Pullback
The lack of upside follow-through reflects the oversupplied market. Despite short-sellers covering on the breakout above the 50-day moving average, larger sellers appear to remain active, preventing a sustained advance.
Oversupply Narrative Continues to Cap Breakout Follow-Through
The breakout rally appears to have been fueled by reports that President Trump was briefed on the situation in Iran and was considering military force to stop the killing of protesters. Speculators bought in anticipation that such a move could trigger a supply disruption. However, unless the U.S. follows through, oil continues to flow from the region.
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According to Reuters, crude oil prices fell on Monday after Iran said it had “total control” following weekend violence, easing concerns over supply from the OPEC producer. Investors also assessed efforts to resume oil exports from Venezuela.
Saul Kavonic, head of energy research at MST Marquee, summed it up by saying, “The market is saying, ‘Show me the disruption to supply,’ before materially responding.”
Market Demands Physical Supply Disruption Before Repricing Oil
Looking ahead, as long as traders continue to defend the 50-day moving average, the chances of a rally remain intact. This would signal real buying interest and suggest the breakout was not driven solely by short-covering—often referred to as buying with conviction.
Trader Focus Shifts to Whether Breakout Area Is Defended
Meanwhile, Venezuela is expected to resume oil exports following the ouster of President Nicolas Maduro, after Trump said last week that the government in Caracas is set to turn over as much as 50 million barrels of sanctioned oil to the United States, according to Reuters.
We expect oil to remain supported on the strong side of the 50-day moving average as long as there is a chance of a meaningful supply disruption in Iran, but gains are likely to remain capped by the prevailing oversupply narrative.
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