WTI Crude: Trading on Weak Side of Retracement Zone

U.S. West Texas Intermediate crude oil futures are down sharply on Monday, pressured by ongoing concerns that extended COVID-19 lockdowns in Shanghai and potential increases to U.S. interest rates would hurt global growth and oil demand.

The selling pressure could stop abruptly later in the session if the European Commission announces a ban on Russian oil and oil products, but the move is still being discussed with no deadline on the books.

At 10:12 GMT, June WTI crude oil is at $97.63, down $4.44 or -4.35%. On Friday, the United States Oil Fund ETF (USO) settled at $76.30, down $1.82 or -2.33%. Based on the overnight performance in the global equity markets and in crude oil, the ETF is expected to open lower.

Expectations of Lower Demand Offsetting Supply Concerns

The current price action is a reflection of the ongoing battle between supply and demand. China’s lockdowns are raising fears that crude oil demand from factories will drop over the near-term. Traders are also on edge because of the Fed’s mission to slow down inflation by slowing down economic growth.

The demand fears are outstripping the potential supply issues, driving down prices. Oil has been supported by tight supply throughout Russia’s war with Ukraine, but the price action suggests bullish traders want to see more issues with supply before playing the long side.

The biggest event that could stop the price slide and perhaps drive prices higher is a ban against Russian oil imports. Meanwhile, the market is seeing some light support from outages in Libya.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, but momentum is trending lower. A trade through $92.60 will change the main trend to down. A move through $109.20 will signal a resumption of the uptrend.

The minor trend is down. This is controlling the momentum. A trade through $105.42 will change the minor trend to up.

The minor range is $92.60 to $109.20. The market is currently trading on the weak side of its retracement zone at $98.94 to $100.90, making it resistance.

On the downside, the major support is the retracement zone at $91.33 to $84.28. This zone stopped the selling at $90.37 on March 15.

Daily Swing Chart Technical Forecast

Trader reaction to $98.94 is likely to determine the near-term direction of the June WTI crude oil futures contract.

Bearish Scenario

A sustained move under $98.94 will indicate the presence of sellers. If this move continues to exert enough downside momentum then look for the selling to possibly extend into the main bottom at $92.60. This is the last potential support before the $91.33 to $84.28 retracement zone.

Bullish Scenario

A sustained move over $98.94 will signal the presence of buyers. The first target is a minor 50% level at $100.90.

Overtaking $100.90 will indicate the buying is getting stronger. This could trigger an acceleration into a minor top at $105.42, followed by a short-term resistance zone at $105.77 to $109.40.