WTI and Brent crude oil are showing signs that the recent pullback may be losing momentum. WTI is holding above support despite a sharp rise in speculative shorts, while Brent continues to display the stronger technical structure. With bearish momentum fading across both markets, the risk of a near-term rebound is building.
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Crude Oil Remains Elevated Despite Shorts Hitting Nine-Year High
Looking at market positioning shows that large speculators have pushed their gross-short exposure to a nine-year high. Despite this, they remain net-long by 109k contracts, while gross-longs have been creeping higher in recent weeks.
It is also interesting that WTI crude prices have not fallen much despite the rise in shorts. This could suggest traders are using these positions more as a hedge than a speculative bearish outlook.
Furthermore, a closer look at the weekly price action on the right-hand chart shows bearish momentum is waning. While the week is yet to close, it hints at a bullish hammer, while volatility has also been lower so far, suggesting bears may be running out of steam.
Source: NYMEX
WTI and Brent Crude Oil Futures Technical Outlook
It has been three weeks since oil prices peaked, and with bearish momentum waning and prices holding above support, I am on guard for a bounce. The loss of momentum has allowed a bullish divergence to form on the WTI daily chart (left). A bullish pinbar on Tuesday respected the 100-day EMA as support, and we’re yet to see a daily close beneath the August high.
Daily trading volume remains low, but the fact it stayed subdued during the decline suggests the bearish move lacked initiative selling. I now suspect quiet accumulation could be supporting prices.
Furthermore, the detrended price oscillator shows prices are 5% below the 20-day SMA – a similar distance to that which marked the August low.
Brent Crude Oil Trend Remains Stronger Than WTI
The trend on Brent crude oil (right) is arguably stronger than WTI’s. A prominent swing low formed on September 30 following a healthy pullback to the 50-day EMA. A bullish pinbar — and potential higher low — has since formed, showing demand above that swing low.
With the clues put together, bulls could be seeking dips within this week’s range in anticipation of the next leg higher.
Just how far crude can bounce will likely depend on headlines from the Middle East. But until the recent swing lows are broken, a bounce remains preferred.
Source: ICE, TradingView
