Crude Oil has recently been navigating a challenging downtrend shaped by a confluence of technical indicators and weakening demand. Despite a brief rebound from the low 70s, the market's trajectory has remained bearish, with key reversal patterns and momentum indicators pointing to further declines.
Overview
Crude Oil has recently been navigating a challenging downtrend shaped by a confluence of technical indicators and weakening demand. Despite a brief rebound from the low 70s, the market's trajectory has remained bearish, with key reversal patterns and momentum indicators pointing to further declines. As traders analyze potential price movements, both upside and downside targets emerge, reflecting the market's sensitivity to economic data and geopolitical risks. Amid these dynamics, the oil market remains poised at a critical juncture, where technical signals and fundamental pressures will dictate the next phase of its journey.
Key Economic Events
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Technical Analysis
Crude Oil has been on a downtrend trajectory supported by technical indicators despite the recent bounce from the low 70s.
After reaching $84.677 per barrel, Crude showed signs of weakness, which eventually became obvious on July 16 with the formation of a bearish reversal pattern known in technical analysis as a failure swing. Specifically, the peak at 83.343 failed to exceed the previous peak, and subsequently, the price dropped below the 80.90 trough. Hence the failure swing.
The decline was supported by both the 50-period Exponential Moving Average (EMA) and the Momentum oscillator. In particular, prices fell below the EMA and the Momentum recorded values below the 100 baseline.
Subsequently, prices formed consecutive lower peaks and lower troughs, which is characteristic of a downtrend. On August 5, weak US labor data shook the markets, and Crude bounced off the 70s lows to hit the 61.8% Fibonacci Resistance between swing high and swing low.
As of writing, Crude Oil remains on a downward trajectory supported by technical indicators and weak demand from China.
Potential Upside Targets
If the bulls take control of the market, traders may consider the following three potential upside targets:
80.261: The first price target is 80.261, which aligns with the 61.8% Fibonacci Retracement between the swing high of 84.677 and the swing low of 72.051.
83.343: The second price target is seen at 83.343, representing the peak marked on July 12.
84.677: An additional resistance level is determined at 84.677, corresponding to a daily high on July 5.
Potential Downside Targets
If the bears maintain control of the market, traders may find potential opportunities in the following four downside targets:
76.826: The initial downside target is expected to be 76.826, which corresponds to the 38.2% Fibonacci Retracement between the swing high of 84.677 and the swing low of 72.051.
74.984: The second line of support is estimated at 74.984, which aligns with the 23.6% Fibonacci Retracement between the swing high of 84.677 and the swing low of 72.051.
73.785: The third support is determined at 73.785, representing the (S1) support calculated using the weekly Pivot Points method.
72.051: An additional support level is identified at 72.051, corresponding to the trough marked on August 5.
Fundamentals
According to the Energy Information Administration, US commercial Crude Oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 1.4 million barrels from the previous week to 430.7 million.
Oil prices declined following a surprising report of a buildup in US Crude stockpiles, disrupting a six-week trend of inventory decreases. West Texas Intermediate fell by 1.8%, settling below $77 per barrel, while Brent dipped under $80. The unexpected inventory rise, contrasting sharply with earlier estimates, raised concerns about a potential global Oil surplus later in the year. Despite a drop in gasoline and distillate stockpiles signaling strong demand, the market's outlook softened, and traders adjusted their positions accordingly.
Meanwhile, geopolitical risks, including potential conflicts in the Middle East, continue to pose a threat to Oil price stability, as reported by Bloomberg.
Conclusion
In conclusion, Crude Oil continues to face a challenging market environment, with persistent downtrends driven by technical indicators and weakened demand, particularly from China. Despite brief rebounds, the overall outlook remains bearish as recent inventory builds and geopolitical uncertainties add to the pressure. Traders are closely monitoring key support and resistance levels, with the market's next moves likely to be shaped by ongoing economic data and evolving global risks. As Crude Oil navigates this complex landscape, its trajectory remains uncertain, poised between potential recovery and further decline.