Key Points:
- Oil’s technicals are looking rather grim.
- The commodity seems to be shrugging off fundamental developments.
- The $45 handle could now be in the crosshairs for the bulls.
Oil prices could be in trouble moving forward as they seem to have shrugged off both renewed commitments from OPEC and a 6.43M barrel draw in US inventories. This could be, in part, a result of the technical bias which is looking fairly dour going ahead. Indeed, current readings are suggesting that we could see the commodity retreats to the $45 mark within a fairly short timeframe.
More precisely, whilst we are currently seeing oil hover above a robust support level at 47.70, there is growing evidence to suggest further losses are now warranted. For one thing, we can see that the 12 and 20 day moving averages have just completed a bearish crossover and the overall EMA bias is now in highly bearish. Furthermore, the MACD and signal line have also experienced a crossover – a sign that oil prices are predisposed to a tumble in the coming days.
If we take a closer look at a number of other technical indicators, the story remains largely consistent with the EMA bias. Notably, the Parabolic SAR is still well and truly above price action and is, therefore, signalling that a continuation of the downtrend is likely to occur. Moreover, a decline back to the downside of the bearish channel would be in line with the regression trend analysis which continues to suggest downside risks are abundant.
Speaking of the channel, the structure highlighted in the above chart represents a near-term cap on downsides but we may see a reversal prior to an actual challenge to the lower constraint. Specifically, the $45 handle should hold as a support zone given that there is a historical zone of support around this price. Additionally, both stochastics and RSI would be deeply oversold around this price if oil tumbles at its current pace which will be worth keeping in mind.
Ultimately, the future isn’t looking too buoyant for oil prices and it’s only likely to get worse unless OPEC members can pull something major out of their collective hats. However, do keep an eye on the North American rig count data as, if the uptick in active rigs begins to slow, this could help to give some credence to OPEC’s cuts – potentially saving the embattled commodity from sinking much further.
