Oil price outlook mired by failure to test 50-Day SMA

Oil Price Outlook

The price of oil bounced back from a fresh yearly low ($63.64) earlier this month to keep the Relative Strength Index (RSI) out of oversold territory, but crude appears to be reversing course ahead of the May high ($76.69) amid the failed attempt to test the 50-Day SMA ($75.14).

Oil price outlook mired by failure to test 50-Day SMA

The price of oil slips to a fresh weekly low ($70.140) as it carves a series of lower highs and lows, and crude may continue to reflect a bearish price series over the coming days as it appears to be tracking the negative slope in the moving average.

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Looking ahead, data prints coming out of China, the world’s second-largest consumer of oil, may influence crude prices as Retail Sales are projected to increase 20.1% in April, while Industrial Production is expected to rise 10.1% during the same period.

The developments may curb the recent decline in the price of oil as it casts an improved outlook for global growth, and it remains to be seen if the Organization of the Petroleum Exporting Countries (OPEC) will adjust the production schedule over the coming months as the most recent Monthly Oil Market Report (MOMR) reveals that ‘for 2023, the forecast for world oil demand growth remains broadly unchanged at 2.3 mb/d.’

Source: OPEC

In turn, the MOMR goes onto say that ‘total world oil demand is anticipated to reach 101.9 mb/d in 2023,’ and expectations for sticky demand may encourage OPEC and its allies to retain the current production schedule at the next Joint Ministerial Monitoring Committee (JMMC) meeting on June 4 especially if the data prints coming out of China instill an improved outlook for global growth.

With that said, positive developments coming out of China may curb the recent decline in the price of oil as the region retracts the COVID-19 restrictions, but crude may struggle to retain the rebound from the yearly low ($63.64) as it carves a series of lower highs and lows following the failed attempt to test the 50-Day SMA ($75.14).

Oil Price Chart – WTI Daily

Chart Prepared by David Song, Strategist; Oil Price on TradingView

• The price of oil appears to be reversing ahead of the monthly high ($76.69) amid the failed attempt to test the 50-Day SMA ($75.14), and crude may track the negative slope in the moving average as it struggles to retain the rebound from the yearly low ($63.64).
• The recent series of lower highs and lows may push the price of oil towards $69.10 (23.6% Fibonacci extension), with a break below the yearly low ($63.64) bringing $62.80 (61.8% Fibonacci retracement) back on the radar.
• Nevertheless, failure to break/close below $69.10 (23.6% Fibonacci extension) may curb the bearish price series, with a move above $71.50 (38.2% Fibonacci extension) opening up the $72.90 (78.6% Fibonacci retracement) to $73.20 (38.2% Fibonacci extension) area.
• Will keep a close eye on the Relative Strength Index (RSI) as the recent weakness in the price of oil pushes the oscillator back towards oversold territory, but another failed attempt to push below 30 may accompany a rebound in crude prices like the price action from earlier this month.

Additional Resources:

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--- Written by David Song, Strategist

Follow me on Twitter at @DavidJSong