Crude Oil Technical Forecast: Oil Bulls Don’t Look Finished Yet

[MongiIG]

CRUDE OIL TECHNICAL FORECAST: BULLISH

• It was a big week for oil bulls, after running into monthly support at 93.53 and then posing a topside break of a falling wedge pattern.
• Last month I looked at a morning star formation on the daily chart that led to a 13% bounce in the following week. Now – there’s a possible morning star brewing on the weekly chart.
• The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.

I last looked at oil prices in our weekly forecasts about a month ago, just after crude had snapped back from the 130.00 level, retracing more than $35 in about six trading days. At the time, a morning star formation had built on the daily chart which can often be indicative of bottoming.

That led to another 13% move in the week that followed, with WTI eventually finding resistance around the same 114.83 level that I had pointed out. This was the 2011 swing high so naturally it’s held some pull in oil markets as that’s currently helping to mark the monthly high in WTI.

That resistance inflection on March 24th led to a bearish outlay for the next two-and-a-half weeks before support finally came in again from the same lows that were in-play in mid-March, plotted at around 93.53.

WTI CRUDE OIL DAILY PRICE CHART

Chart prepared by James Stanley; CL1 on Tradingview

A BIG WEEK FOR OIL

This was a big week for oil as prices broke above that bearish trendline that’s set the tone since the high was set. After running into that support at monthly lows on Monday, bulls pushed all week, back above the 100 level and eventually above 105.00.

But, if we look at that sell-off from the four-hour chart, it shows as a falling wedge. This formation is often followed with the aim of bullish reversals, which appears to be what’s taking place with this weeks topside move.

WTI CRUDE OIL FOUR-HOUR PRICE CHART

Chart prepared by James Stanley; CL1 on Tradingview

CRUDE OIL LONGER-TERM

That formation that we looked at in the beginning of this article and the same one that I was using last month to follow that bounce in crude, it’s back again. But this time it’s on the weekly chart. It’s not complete yet – we need the week to close first without price pulling back too much for the formation to finish, but this keeps the door open for bullish potential after buyers made a pronounced re-entry into the situation this week.

Morning star formations are often followed with the aim of bullish reversals, positing that a bottom is in play, whether it be short or long-term. And, from the weekly, given the number of tests at that 93.53 level combined with a bullish engulfing candlestick, that can align for a bullish forecast for crude oil.

This keeps the focus on prices returning back to that same 114.83 level that came into play last month.

WTI CRUDE OIL – WEEKLY PRICE CHART

Chart prepared by James Stanley; CL1 on Tradingview

--- Written by James Stanley, Senior Strategist for DailyFX.com. 15th April 2022

[Blue2]

I agree - oil bull-run not done. Only thing holding it back is Covid lock-down in China - and sentiment about that is about as bad as it can be at the moment. I think any loosening of covid restrictions over there will lead to big oil price rebound as so many other factors pushing oil up (Russia/Ukraine , likelihood of EU ban on Russian Oil imports, OPEC + not playing the Wests game! etc etc... May bounce higher than before, then demand destruction will kick in around $160-180 per barrel, then will come crashing down again! Always the same with volatile commodities...

[786Trader]

Am of a slightly different position..... EU may not ban Russian Oil imports, unanimous decisions unlikely especially from Orban's Putin friendly Hungary. Opec may reluctantly increase supply as the higher the prices the more they will be seen as profiteers profiting on the back of Ukraine suffering and indirectly supporting Putin. (never good to back a loser with such high stakes) They may realise Russia's hands are tied as they are unable to wield the same kind of influence as before the "special military operation" which is actually a full blown war that Russia is not winning. Putin's influence has diminished and may never recover to the same level within OPEC+. Certainly not with sanctions and brutal **** war.

China is very unlikely to change its zero Covid policy. 

Price may still rise if the war is not over by Autumn...

There is an unlikely theory/rumour  circulating Putin may declare war on Nato on "Victory" day May 9th. In said scenario Oil and gasoline may double. If not, it is fair to expect a continued break down in the price of WTI and Brent.

It is fair to say electric and hybrid vehicles have suddenly become more viable for environmental  and political reasons and will continue to be a preferred option in the future.

[Blue2]

Thanks 786, I reckon your scenario is pretty sound. I agree that ultimately prices will continue down. What I'm  less confident about is whether there'll be a second peak or not before that. The oil price-action now is not far off some very strong support on the daily / weekly chart (although, admittedly, last time I looked RSI indicating not oversold yet),  so if it shoots back up I reckon it will be soon.

Thanks for highlighting the victory day thing, as you say - big potential for a price shock if Putin goes Full **** and declares war on the West. Personally I reckon China covid policy will loosen (although it may not be soon), if only because their zero covid policy will quite quickly contain the virus, as it did during the first wave. It will only take one headline about a fall in covid rates to change sentiment and make the price drop down for a few days...