Oil News: Geopolitics Lift Crude Oil Futures as Traders Reassess the Oil Outlook

Oil Futures Climb as Traders Test Recovery Above Critical $56.86 Support

Light crude oil futures are trading higher on Monday as traders attempt to recover from Friday’s sharp sell-off while attempting to build upon the current rally from $54.84. The base-building process appears to be structurally sound with buyers coming in at a key 50% level at $56.86 to produce today’s early rally. However, the market is still being capped by a number of resistance levels. These need to go in order to reverse the trend and fuel a strong breakout rally.

At 14:05 GMT, Light Crude Oil Futures are trading $58.13, up $1.39 or +2.45%.

Technical Picture: Downtrend Intact but Momentum Shifts as Base-Building Takes Hold

Technically, light crude oil futures are still in a downtrend, but momentum has turned slightly higher.

The short-term range is $54.84 to $58.88. It’s 50% level at $56.86 stopped the selling on Friday and is holding up today. The market has also recovered another 50% level at $57.60, which is helping to build the momentum.

The $58.73 Battleground: Why the 50-Day Moving Average Could Make or Break This Rally

Standing in front of the rally and a potential breakout is a 50% level at $58.62 and the 50-day moving average at $58.73. It’s the 50-day moving average that has my attention and hopefully the attention of a few major buyers. Given this is a holiday week, we’re going to need some real buying to sustain a longer-term rally over the 50-day MA. Otherwise, the breakout attempt will fail.

Bull Case: Breaking Above $58.73 Opens Path to $60.48 Target

For bullish traders, we’re looking for a sustained move above the 50-day moving average to trigger a spike into the 200-day moving average at $60.48.

Bear Case: Failed Breakout Could Trigger Swift Retreat to $54.84

Bearish traders are likely to continue to lean on the 50-day as resistance. If the weak buyers get tired of trying to breakout to the upside and pull their bids, prices could collapse under $56.86, leading to a potential retest of $54.84 over the near-term.

Fundamentals vs. Geopolitics: The Tug-of-War Between Oversupply and Global Uncertainty

Essentially, it’s the classic “known versus unknown” battle. The known is the bearish fundamentals highlighted by the oversupply situation. The unknown is geopolitics. Will the U.S. escalate the seizures of Venezuelan oil? Will Ukraine continue to pound Russian infrastructure? How are the sanctions against Russia impacting production? These are the questions creating some of the uncertainty encouraging the short-sellers to lighten up on the downside.

Ukraine Peace Talks and Middle East Tensions Fuel Monday’s Bid

Two stories are behind today’s bid: talks between the U.S. and Ukrainian presidents on a possible deal to end the war in Ukraine and a potential oil supply disruption in the Middle East.

Holiday Trading Warning: Light Volume Could Amplify Price Swings

With trading expected to be light due to the holiday shortened week, any reaction to these events could be exaggerated so be prepared for pockets of volatility.

EIA Inventory Report in Focus: Crude Draw Expected to Counter Rising Product Stocks

In addition to the main events, investors will get the opportunity to react to fresh inventory news from the U.S. Energy Information Administration (EIA).

According to Reuters, U.S. crude inventories were expected to have declined last week, while distillate and gasoline inventories are likely to have risen. Look for a 2 million barrel drop in crude oil inventories.

More Information in our Economic Calendar.