Gains that took crude oil weeks to achieve have been unwound in two sessions, suggesting it’s far easier to sell rallies than buy dips in this environment.
By David Scutt, Market Analyst
- Crude oil has fallen to two-week lows
- Reports suggest key exporter Saudi Arabia willing to sacrifice higher prices to protect market share
- Technical price signals were bearish prior to the report
- Selling rallies remains the preferred strategy
Saudi story creates crude carnage
Crude oil is one of the few commodities that hasn’t participated in the broader rally this week, weighed down by a report from the Financial Times on Thursday that Saudi Arabia will sacrifice higher prices to protect market share.
Citing sources familiar with Saudi deliberations, it suggested the Gulf State is willing to boost production in December as slated earlier this year, sacrificing higher prices to protect OPEC+ market share which has dwindled to 48% of global supply, according to calculations from Reuter. The largely reflects the impact of increased shale oil production in the United States.
Adding to bearish price signals
Even before the report dropped there were signals crude was staring at downside, with a key reversal on Wednesday setting the tone. The gains crude took weeks to achieve have been unwound in two sessions, suggesting it’s far easier to sell rallies that buy dips in this environment. That view is reinforced by the uptrend break in RSI (14), a bearish signal on momentum that looks like it’s about to be confirmed by MACD.
Short crude oil setup
Thursday’s rout sent WTI through $67.65, a level that has acted as something of a pivot point for prices recently. Given its proximity, it creates a level to build a bearish setup around.
You could sell around these levels, but my preference would be to wait to see whether the price can take out Thursdays low of $67 first. You could then set a tight stop above $67.65 for protection. On the downside, $64.10 would be an obvious target.
While the price and momentum signals are undeniably bearish, being close to quarter-end and with ample optimism out there about the global economy given China’s latest stimulus measures, I’m determined to let the near-term price action to tell me what to do. If it can’t break Thursdays lows, or reverses back above $67.65 and closes there, it would question the near-term bearish bias.
Click the website link below to get our exclusive Guide to oil trading in H2 2024.
https://www.cityindex.com/en-au/market-outlooks-2024/h2-oil-outlook/
– Written by David Scutt
Follow David on Twitter @scutty
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