Crude oil uptrend has reached critical resistance

This week has seen a renewed upsurge for crude oil prices sparked by several unexpected events and news that have helped alleviate ongoing oversupply concerns, at least temporarily. Factors contributing to this rise included: wildfires in Canada that have dramatically disrupted Canadian oil production, a report by the US Energy Information Administration of an unexpectedly large decrease (-3.4 million barrels) in US crude oil inventories, and a rise in the global oil demand forecast for 2016 to 1.2 million barrels per day by the International Energy Agency.

Aside from these very recent events, crude oil prices have generally been rising in a sharp uptrend channel since January as US oil production has slowed substantially. This rise has occurred despite continued high output from OPEC countries and other major oil producers, who failed last month to reach any agreement on a proposed deal to coordinate an oil production cap.

For the Brent crude oil benchmark, this week’s rebound and rise after the previous week of pullback has brought the price of oil back up to approach a major technical resistance area at $48 per barrel. This level was last reached in late February, when Brent established a new 5-month high at the top of the noted uptrend channel. The $48 level also represents the 50% Fibonacci retracement of the prolonged slide from the $70-area highs in May of last year down to January’s lows around $27. During the course of the sharp uptrend and recovery since those January lows, Brent’s 50-day moving average formed a technical "golden cross" in late April by moving above its 200-day moving average, suggesting continued bullish momentum.

Within the context of this strong uptrend momentum, however, the $48 resistance level continues to pose a key technical obstacle to a further rise. If price is able to make a strong and sustained breakout above this $48 obstacle, it could open the way towards the next major upside target at the key $54 resistance area. In the event that the $48 resistance level holds, however, Brent crude could potentially sustain a swift and sharp retreat back down towards the major $42 support level.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

The markets are moving. Stop missing out.

Open an Account