Oil Price Eyes 2021 High as RSI Pushes Toward Overbought Territory

[ArvinIG]

OIL PRICE TALKING POINTS

The price of oil fills the price gap from November as it climbs to a fresh monthly high ($83.10), and a move above 70 in the Relative Strength Index (RSI) is likely to be accompanied by higher crude prices like the behavior seen during the previous year.

OIL PRICE EYES 2021 HIGH AS RSI PUSHES TOWARD OVERBOUGHT TERRITORY

The price of oil trades extends the advance from earlier this week following a larger-than-expected decline in US inventories, and crude appears to be on track to test the 2021 high ($85.41) as it clears the opening range for January.

Current market conditions may keep the price of oil afloat over the coming days as US stockpiles narrow for seven consecutive weeks, with inventories falling 4.553M in the week ending January 7 versus forecasts for a 1.904M decline. The development may keep the Organization of Petroleum Exporting Countries (OPEC) on a preset course as the group remains in no rush to push oil output towards pre-pandemic levels, and it remains to be seen if OPEC+ will adjust the production schedule at the next Ministerial Meeting on February 2 amid the ongoing weakness in US output.

A deeper look at the figures from the Energy Information Administration (EIA) show weekly field production narrowing to 11,700K from 11,800K in the week ending December 31, and indications of limited supply along with expectations for stronger demand may lead to higher oil prices as OPEC’s most recent Monthly Oil Market Report (MOMR) insists that “in 2022, world oil demand growth was also kept unchanged at 4.2 mb/d and total global consumption at 100.6 mb/d.”

With that said, the price of oil appears to be on track to test the 2021 high ($85.41) as it fills the price gap from November, and a move above 70 in the Relative Strength Index (RSI) is likely to be accompanied by higher crude prices like the behavior seen during the previous year.

OIL PRICE DAILY CHART

Source: Trading View

• Keep in mind, the price of oil cleared the July high ($76.98) after defending the May low ($61.56), with crude trading to a fresh 2021 high ($85.41) in October, which pushed the Relative Strength Index (RSI) above 70 for the first time since July.
• Nevertheless, the price of oil reversed ahead of the October 2014 high ($92.96) as the RSI fell back from overbought territory, but crude has established an upward trend following the failed attempt to test the August low ($61.74).
• A move above 70 in the RSI is likely to be accompanied by higher oil prices like the behavior seen in October, with the price of crude on track to test the 2021 high ($85.41) as it clears the opening range for January.
• Need a close above the $84.20 (78.6% expansion) region to keep the 2021 high ($85.41) on the radar, with the next area of interest coming in around $88.10 (23.% expansion).
• However, the price of oil may fall back within the ascending channel if the RSI fails to push into overbought territory, with a move below the $81.50 (100% expansion) region opening up the $78.50 (61.8% expansion) to $78.80 (50% expansion) area.
• Next region of interest comes in around $76.90 (50% retracement) to $77.30 (78.6% expansion), with a move below the 50-Day SMA ($75.50) opening up the $73.90 (61.8% expansion) to $74.40 (50% expansion) area.

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DISCLOSURES

David Song, Currency Strategist, DailyFX
13 January 2022