WTI oil price analysis: is the rally slowing down?
Investors following the oil market in recent weeks are wondering if the wind has come out of the sails of the rally which has seen the crude oil price almost quadruple since April lows near $10 a barrel.
One of the most popular traded crude oil benchmarks – West Texas Intermediary (WTI) – has been on its way to recovering from the epic downfall in March. But it appears now that recovery in the oil price chart analysis may have been put on hold.
The latest WTI oil forecast is widely impacted by the economic recovery efforts in major economies and fears of the second wave of the coronavirus. There are differing views on where the price is headed. Below we look at some of the factors that you should definitely consider before entering a trade in July.
WTI oil forecast: is the recovery over?
Since dropping drastically in the wake of lack of demand and oversupply brought on by the coronavirus pandemic the WTI oil price has strengthened. The rally in the latter part of May and through June was encouraged by the easing of restrictions in many countries and the strong commitment by governments to support their economies through huge stimulus packages.
Since hitting a new high of $41.60 we have seen a slight drop and essentially sideways movement in the price of oil.
The main driver of the WTI oil analysis and the possibility of a further rally is the ability of major economies to continue reopening without being forced to initiate further lockdowns. Further lockdowns will lead to a prolonged U-shaped recovery and this will put downward pressure on the price of oil again as storage inventories are still at all-time highs.
Even with the much better than expected jobs numbers released in the US last week, non-farm payroll data showed unemployment dropping to 11.1 per cent compared to the 12.4 per cent estimate, there is still a tug of war between the bears and the bulls.
The bulls point to the US data as well as increasing manufacturing data coming out of China while the bears are cautious in the face of the recent surge in US virus numbers. This has led to a stall in the price between $35-$40 per barrel. Investors continue to look for a clear indication of the direction the world economy is heading and until this is available there may not be much significant movement.
Traders should also follow any developments in OPEC carefully over the next month. The drastic production cuts agreed to by the cartel in April are set to expire at the end of July and any return to full production would have a devastating impact on the current price.
It is widely believed that they will extend this agreement at least until the end of August, more as a strategy to decrease current storage volumes than to support the price but this announcement would likely put some upward pressure on the price at least in the short term.
WTI oil price analysis
While the current price of WTI crude oil is just over $40 per barrel we can determine, let’s take a quick look at the oil chart analysis to define the most important support and resistance levels to watch for your oil trades in July.
The WTI oil price resistance level is currently at $41.60 which was the high reached on June 23. The support level is at $34.50 which was the low from June 15, 2020. If the price is able to break through the resistance level above the June 23 high, we would likely see a very quick upward rally with movement towards the next resistance level of $44.00.
However, if the oil price makes a downward move below $37.50, we can see a bearish trend with the WTI oil potentially sinking down to $36.63 and even $35.45.
Going back to the WTI oil chart, the WTI oil price had been moving above the trend line through much of June and has just recently dropped below.
This does not automatically indicate that the price will stay below the trend line and there is strong opinion that while there may be some short-term volatility that could result in a lower price the overall upward trend will continue. The Relative Strength Index (RSI) has been sitting at just over 50 per cent for much of the past month and does not give any clear indication on sentiment regarding the current price. The consensus seems to be that without any major unforeseen impact on the forecast we should see continued sideways movement with slight upward pressure.
WTI oil forecast: buy or sell?
Given all the factors we have currently discussed we are not likely to see any drastic movements in the WTI oil price forecast or changing sentiments in oil analysis in the short run.
The huge storage inventories will also play a role in tempering any quick surge in price as increasing demand can quickly be filled. There could be a short-lived drop in the price as traders may have a knee-jerk reaction to the most recent dip.
Given the current trading climate it may be possible to capture some value in short-term volatility by placing reasonable buy and stop-loss points.
Whether you take a long or short position on US crude oil largely depends on your view of how the macro variables – virus fears, supply vs demand ratio, OPEC cuts – will play out in the next few weeks.