Crude Oil Rally Faces Resistance as WTI and Brent Lose Momentum

WTI and Brent Crude Oil Face Resistance as Momentum Fades

Two weeks ago, I was looking at the potential for crude oil to rally from support levels. It had already fallen for three weeks, yet WTI was holding above $90 and its 10-day EMA while hinting at a bullish reversal pattern, and Brent had already broken higher from a bearish correction channel. Precisely two weeks later, I am pleased to see they have both bounced well.

Yet I am now questioning crude oil’s potential to simply keep rallying from here, at least from a technical perspective. While oil could easily rally if traders are hit with another supply disruption - particularly from the Middle East - I also suspect that a lack of any fresh catalyst places crude oil on the ‘overbought’ list for now.

And if shorting oil is not worth the risk, bulls could at least use these warnings to tread carefully and avoid chasing an extended move - unless an adequate bullish catalyst arrives.

View related analysis:

WTI and Brent Crude Oil Technical Outlook

The daily charts show that WTI has risen 15% over the past two weeks from its 100-day EMA, while Brent has risen 18% from its 50-day EMA over the past 14 days. Brent has also retested its September high, something WTI has yet to do, although WTI has closed the gap around $99.

Yet the fact that both have produced wide-legged dojis on high volume is concerning for bulls, as it points to a volatile battle around the cycle highs and potentially a change of hands from bulls to bears. Also note the bearish divergences forming on their RSIs, which further suggest exhaustion is building into the current rally.

WTI May Be Preferable for Bears if Crude Retraces

Brent has been the outperformer, which shows the greater potential to lull bulls into a trap. But is also has plenty of resistance levels nearby which could weigh on bullish appetite. Ultimately, I am now seeking further evidence of a pullback before reconsidering a long bias. And if one arrives, brent remains the favoured one for dips given it has been the stronger performer of the two. And that also means WTI may be preferable for bears over the near term, id momentum turns south.

Source: NYMEX, ICE, TradingView

WTI Crude Oil Positioning Remains Cautious Despite Rally

Large speculators have been increasing their short bets against WTI crude despite the recent bounce. Longs have also been trimmed which has seen a reduction of net-long exposure compared to three weeks ago – back when the rally began. The changes to exposure are by no means significant, but they also show a general lack of concern for higher oil prices – despite worrisome headlines form the Middle East.

Source: NYMEX, CFTCF (COT, LSEG

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

FOREX.com is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment and CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.forex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.forex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 42.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.

Delayed London Stock Exchange (LSE) Data

The London Stock Exchange (LSE) market data displayed or referenced on this website is provided on a delayed basis and is not in real time. The delay period may vary but is typically at least 15 minutes. This data is intended for information purposes only and should not be relied upon for trading, investment, or other financial decisions. We do not guarantee the completeness, reliability, or suitability of the data for any particular purpose. Users should consult real-time data sources and obtain professional advice before making any financial decisions.