Crude Oil Price Jumps on Upbeat Outlook and Softer US Dollar. Where To For WTI?

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CRUDE OIL, US DOLLAR, OMICRON, NORD STREAM 2, WTI - TALKING POINTS

• Crude oil prices have recovered from losses earlier in the month
• Risk appetite and inventory drawdown numbers give oil a lift
• Energy demand in Europe looms as winter approaches. Will WTI rise?

Crude oil received a boost from a combination of improving risk appetite and decreasing inventory numbers today.

Equities continued their recovery from the sell off earlier in the week as the severity of the impact of Omicron variant may not be as dire as initially thought.

A study from South Africa, where the variant was first identified, found that hospitalisations and mortality rates were much lower than previous strains.

This led to a US Dollar retreat, lifting oil prices and commodities in general.

The Energy Information Administration (EIA) data showed that crude inventories had fallen by 4.72 million barrels, more than anticipated. It should be noted though, that there is some seasonality around the numbers.

In the background, European energy prices continue to trade at elevated levels due to the tension between Russia and the EU. The certification of the Nord Stream 2 natural gas pipeline from Russia to Germany appears to have been pushed out beyond the first half of 2022.

 

CRUDE OIL TECHNICAL ANALYSIS

Crude oil made a low earlier this month at 62.43, above the previous lows in May and August of 61.59 and 61.74 respectively.

That low saw an outbreak of volatility and the price moved below the lower band of the 21-day simple moving average (SMA) based Bollinger Band. On the first close back inside the band, the price rallied over five days to a high of 73.34. Since then, the price has been mostly moving sideways.

This expansion and contraction of volatility can be observed by the widening and narrowing of the width of the Bollinger Bands.

A Death Cross occurs when a shorter time frame SMA crosses below a longer term SMA. The 21-day SMA has just crossed below the 200-day SMA. Additionally, the 34-day SMA appears likely to cross below the 100-day SMA. This might indicate that a bearish trend could be evolving.

On the topside, resistance may be offered at previous highs and pivot points of 73.34, 74.76, 74.96, 79.33 and 81.81. While on the downside, support is potentially at the previous lows of 66.12, 62.43, 61.74 and 61.56.

Chart created in TradingView

Written by Daniel McCarthy, Strategist for DailyFX.com. 23rd December 2021.