WTI crude oil looks stretched at these lows

It seems whichever way crude oil moves, it is a concern. Rising oil prices is bad for the consumer via inflationary pressures, yet lower prices are a sign of a weakening economy. We’ve returned to the latter phase, with WTI crude oil falling over 8% during its worst week since January. And it could have been trading lower, were it not for a weaker US dollar. Yet while it shows the potential to keep falling should current market positioning trends persist, a bounce could be in order first.

WTI crude oil futures market positioning – COT report

Net-long exposure to crude oil has fallen to a 30-week low among large speculators. And while speculative volumes have gradually declined since the pandemic, they’re perking up once more due to a rise of short interest. Also note that momentum has turned lower on the weekly chart, with prices breaking out of a triangle pattern.

Weaker US employment factors played a part in last weeks’ decline, but so did the latest round of figures from China. Producer prices contracted faster than expected at -1.8% y/y, with consumer prices also coming in soft. And should incoming data form the US and China continue to deteriorate, so will the demand outlook for oil – and weigh on prices accordingly. And with speculative trading volumes relatively lower while retaining a net-long exposure, it leaves plenty of opportunity for bears to return from the sidelines to push prices lower if the global economy comes apart at the seems.

WTI crude oil technical analysis:

However, given oil prices are down over 13% in the past eight days, bears may want to wait for a bounce before considering fresh shorts. Prices are also holding above the 2024 open price, volumes fell over the past four days whilst prices declined and the daily RSI (2) reached oversold on Friday.

A bullish divergence has also formed on the 4-hour RSI (14), a bullish engulfing candle just formed and two lower wicks suggest demand around 66.90. Bulls could seek dips within Monday’s range in anticipation of a bounce towards $70, a break above which brings the 71.58 72.00 range into focus over the near-term. We could then reassess its potential for a swing high to form for bearish swing traders, if it can bounce that far.

Keep in mind that OPEC are likely to support prices if it dips too far into the lower 60s, and to expect prices to fall and hold that far, we may need more confirmation of an actual recession – not just fears of one.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge