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

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