A Potentially Bearish Signal For Oil Markets

In an unexpected twist, given the plethora of bullish fundamentals, crude oil prices are on course for a decline this week due to profit-taking and renewed economic concerns sparked by the Fed's recent comments. Russia's sudden announcement of a ban on fuel exports added upward pressure to prices, but potential economic challenges in the West played a crucial role in keeping prices from surging.

The Dance of Supply and Demand

Brent and U.S. West Texas Intermediate (WTI) witnessed a fluctuating week, putting them in a position to post potentially damaging weekly closing price reversal tops on the charts. The spotlight was taken by Russia's decision to halt gasoline and diesel exports, effectively leaving out a wide range of countries. The immediate consequence? Heating oil futures jumped by almost 5%. With diesel and gasoil expected to reach new peaks, this could ripple into the crude markets, providing an upward thrust.

On the other side of the spectrum, the U.S. Federal Reserve held interest rates but hinted at a potential hike by year-end. An increase could potentially dampen the economic growth, translating to a subdued demand for fuel. In line with this, the U.S. dollar reached heights not seen since early March, making oil a pricier purchase for those not using the dollar. Additionally, reduced U.S. unemployment claims suggest the possible inclination towards higher interest rates in the near future.

Global Central Banks and the Oil Equation

It wasn't just the U.S. Federal Reserve that caused ripples in the oil market. The Bank of England, after a series of hikes, held onto interest rates, and Norway's central bank surprised everyone with a hike and an indication of another one in December. In the backdrop, oil prices find some support from concerns about global supply shortages as we approach the last quarter. Indicators suggest tight supplies, with U.S. crude stocks at Cushing witnessing their lowest numbers since July 2022.

Looking Ahead

The ongoing geopolitical developments, especially involving major oil players like Russia and OPEC+ members, coupled with the central banks' decisions, will undoubtedly steer the future of oil prices. Russia's contemplation of imposing hefty export duties on oil products and U.S. shale production witnessing a drop add more layers to this already complex scenario. With the colder months approaching, there's tangible anticipation in the air regarding potential price spikes. The pace of these hikes could spell problems for global economies, especially if driven predominantly by supply challenges.

Weekly Technical Analysis

Weekly December WTI Crude Oil

Trend Indicator Analysis             

The main trend is up according to the weekly swing chart. The main trend will change to down if sellers take out the swing bottom at $77.03. The next target is the futures contract high at $93.92.

Retracement Level Analysis

The contract range is $37.89 to $93.92. Its retracement zone at $65.91 to $59.29 is the major support zone. This stopped the selling in May.

The intermediate range is $93.92 to $63.00. The market is currently trading on the strong side of its retracement zone at $82.11 to $78.46, making it support.

The minor range is $63.00 to $89.33. Its retracement zone at $76.17 to $73.06 is additional support.

Weekly Technical Forecast

The direction of the December WTI crude oil market the week-ending September 29 is likely to be determined by trader reaction to the intermediate Fibonacci (61.8%) level at $82.11.

Bullish Scenario

A sustained move over $82.11 will signal the presence of buyers. This could create the momentum needed to trigger an acceleration to the upside with the contract high at $93.92 the next major target price.

Bearish Scenario

A sustained move under $82.11 will indicate the presence of sellers. This could trigger a retest of the 50% level at $78.46. If this fails to attract new buyers then look for a test of the minor bottom at $77.03. If this level is taken out then momentum will shift to the downside with $76.17 to $73.06 the primary target area. This is a value zone so with the main trend up, new buyers are likely to step in to buy.

Warning: Potentially Bearish Pattern Developing

This week, the market hit a higher-high than the previous week, but is now trading below the September 15 close at $88.97. This puts it in a position to post a potentially bearish closing price reversal top.

This chart pattern won’t change the trend to down, but if confirmed, it could trigger the start of a 2 to 3 week correction. Essentially it is telling us that traders are reluctant to buy aggressively this close to resistance at $93.92, giving the longs an excuse to book profits and play for a break into more favorable price levels like $82.11 to $78.46.

Short-term Forecast: Cautiously Bullish

Considering the intertwined global scenarios and the anticipated supply strains, the outlook leans bullish for the short term from the fundamental side. Brent, currently trading around $93, might touch the $100 mark as the winter months draw closer. With the momentum clearly supply-driven, a swift price surge might be on the horizon, potentially leaving economies scrambling to adjust. However, traders are optimistic about a longer-term easing, with more supply entering the market, eventually leading to stabilized prices.

The fundamentals are clearly leaning toward the bullish side, but a weekly closing price reversal top on the technical side could weigh early next week. But trend traders shouldn’t worry. The move would amount to a technical adjustment and could even offer lower, more attractive prices for buyers.

Overall, we’re bullish, but will remain cautious until we see how the reaction to the technical reversal plays out.