The oil market staged a huge upside breakout last week after Saudi Arabia announced a major output cut, and the Biden administration promised an upcoming stimulus bill that would be in the “trillions”.
The fundamental story for oil looks good at the moment, even in the face of rising COVID-19 infections across the globe. Financial markets expectations are set high that the COVID-19 vaccine roll-out will soon have the virus outbreak under control.
Perhaps the most compelling case for higher oil price in the near-term is the incoming US stimulus package. Undoubtedly, massive US stimulus would give oil prices a boost in the near-term, however, the details of the upcoming package could be what gives oil a longer-term boost.
Any strong commitment inside the stimulus bill to the proposed “green new deal”, which heavily anti-fracking, could cause oil prices to rally further. The reason that price could rally is the perception that Crude oil may become scarce if fracking is under threat.
Recently, a number of oil companies have secured long-term oil drilling permits to try to get around a potential Biden administration that is unfavourable to the oil industry. It now remains to be seen if the Democrat party majority in US Senate will have the power to fully go after the fracking industry now that a majority.
Traders looking for a way to buy into oil from a more attractive vantage point may about to get lucky as some bearish news developments are expected to towards oil over the coming weeks.
The upcoming OPEC report is predicted to cast a shadow over the price recovery. Details inside the report are expected to show OPEC downgrading their near-term outlook towards oil.
Additionally, the incoming EIA report is expected to highlight weak demand for crude oil. The price action and the technicals are obviously telling another story, and the chart are showing that crude is approaching some key levels.
Crude Oil short-term Technical Analysis
The lower time frames show that an invalidated head and shoulders pattern is close to reaching its overall upside of around $53.00. With the pattern approaching its overall target, it is certainly a reason to be cautious towards crude oil in the near-term.
Source by ActivTrader.
A number of key technical indicators are also extremely overbought across the lower time frames and may need to unwind. The stochastic and RSI indicators have reached extreme overbought reading, hence traders must be cautious towards a strong technical correction.
According to technical analysis, key near-term support for Crude oil is currently found at the $51.00, $50.00, and $49.50 levels.
Crude Oil medium-term Technical Analysis
The daily time frame shows that Crude oil is approaching a very important trendline, around the $53.00 resistance level. From a technical perspective, the trendline is very important, and could determine whether Crude continues towards the $60.00 and above or fades back towards the $50.00 level.
Source by ActivTrader.
Trend based indicators are still issuing strong buy signals, and something important to note, Crude oil is approaching its 200-week moving average. The 200-week is found around the $53.00 level and will be a big focus for technical traders this week.
Once again, technical indicators are extremely overbought. The daily RSI is at its most overbought since mid-December last year, while the weekly RSI has reached levels not seen since May 2018.