Oil Price Forecast – Negative Economic Sentiment Weighs on Oil PricesOil sees further downward pressure from a rising dollar and global economic slowdown fears due to the spread of coronavirus.
Crude oil is down $0.60 or 1.23% to $49.79 currently, as it tests support of $49.31, the most recent trend low. Oil is now starting the sixth week of lower prices – at least so far.
Concerns Over Slower Economic Growth
Investors continue to watch the U.S. dollar index as it moves to a new trend high today and puts further downward pressure on oil and other commodities. At the same time, negative sentiment prevails due to concerns over the damage to the Chinese economy from the coronavirus outbreak.
China has the world’s second largest economy, behind the U.S. A slowdown in China’s economy will have some degree of negative impact on global growth and therefore demand for oil.
Potential for Short-term Bullish Reversal
An ABCD pattern, sometimes referred to as a zig zag pattern, in the intraday 2-hour chart completed earlier today as oil hit a low of $49.56. That’s just $0.04 shy of an exact target completion price of $49.52, and close enough.
The completion of an ABCD pattern marks a potential bullish reversal zone. It is where the price decline seen in the CD leg matches the drop in the AB leg. Yet, a reversal signal is needed to confirm strength, and so far, we don’t see that.
Signs for Reversal
When using the 2-hour chart, the first minor bullish signal is given on a move above the recent swing high of $51.03. Nevertheless, a more important bullish confirmation is given on a rally above the swing high at point C of $51.46, as it is also a daily high.
Low Risk Entry
The recent $49.30 trend low or a little lower, is a possible low in oil as price stopped going down right at the falling trendline across the bottom of the past year’s consolidation range. By itself, this is not enough to get bullish, but it does indicate it is time to watch for a possible reversal.
Since the lower trend line is falling, the price represented by the line will decline over time. So, even if oil breaks the $49.30 low by a little, if it stays roughly above the line, it is showing support. If not, then oil should keep falling.