Bullish Backdrop Remains Despite Weekly Drop

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Crude Oil Price Forecast Talking Points:

  • The ONE Thing: Another week has gone by, and the immediate global growth outlook appears worse, but that isn’t stopping crude traders from expecting further strength. A technical pattern known as an inverse head and shoulders that sees support near $50, could continue to favor price advances.
  • Where’d the volatility go? Late 2018 reminded traders of late 2014 when crude was in a free fall, but that environment has quickly shifted to one of calm.
  • Crude remains in a short-covering rally below the daily Ichimoku Cloud. However, the falling global supply or access of Venezuelan oil from PDVSA may further support price increases in the near future.

You are in luck, DailyFX’s Q1 2019 Crude Oil Forecast was just released

Technical Forecast for USOIL: Neutral

Crude Bulls Likely to Remain Confidence Above $50/bbl

Oil

Chart Source: Pro Real Time with IG UK Price Feed. Created by Tyler Yell, CMT

Crude and the commodities sector as a whole remains one of 2019’s hottest investments. Iron Ore is up 30%, while Brent & WTI are higher by 18.4 & 15.8% respectively. Equities are only up a measly 8% in the US’ SPX500 and 9.8% for Canada’s SPTSX. Kidding of course, given that ~8% is the long-run equity premium, that is an incredible start to the year, but it goes to show that commodities are hotter than equities…for now.

The commodity story is once again being driven by hopes of government intervention from both sides. Stimulus from China that is helping Iron Ore to 4-year highs & de facto bans from the US on Venezuelan Oil have kept traders anticipated future gains, and the charts are bolstering their case.

Are you familiar with the head and shoulder’s pattern? It’s typically seen as a reversal pattern and there is a bearish and bullish version whereas markets are now looking at the bullish type with the price action from November to present. Support for the pattern is near $50/bbl on WTI. Additionally, a move above the YTD high $55.26/bbl would not only take the price of WTI crude into validation territory for this bullish pattern that targets the $60-$65/bbl zone that is also the 61.8% Fibonacci retracement of the Q4 range, but it would send Ichimoku into a bullish environment that would support further gains.

Crude traders will likely remain confident that price pressure could continue on the upside north of $47.50/bbl, which is the 61.8% retracement of the December-February range.

Looking for a fundamental perspective on Crude oil? Check out the Weekly Crude Oil Fundamental Forecast.

Does Anyone Know Where Volatility Went?

Crude Oil

Data source: Bloomberg

Brent crude has failed to excite investors based solely on price volatility in recent sessions. The chart above shows the daily ranges of Brent with an overlay in orange of Brent’s price in orange. The far right shows a sharp drop in daily volatility, which mainly does damage to option holders as the bounce that started in late December could continue as argued above.

The low volatility may be due to traders unwilling to take large bets despite strong OPEC+ cuts, Venezuelan turmoil and lower active rigs in the US per Baker Hughes. Traders could be waiting for the April OPEC meeting or other developments on the trade war front.

We’ll see.

---Written by Tyler Yell, CMT

Tyler Yell is a Chartered Market Technician. Tyler provides Technical analysis that is powered by fundamental factors on key markets as well as trading educational resources. Read more of Tyler’s Technical reports via his bio page.

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