Will Oil Prices Break Out Of Their Range?

U.S. West Texas Intermediate is trading lower on Friday after giving back earlier gains. Some traders are saying the markets are taking a breather from the nearly 10% run-up this week, but we could be looking at profit-taking related to an easing of concerns over Hurricane Delta as it makes its way toward oil production facilities near the Louisiana coast. Additionally, there are reports that the strike could end later today.

Week-Long Price Surge Driven by Norwegian Strike

Oil prices are easing early Friday in a breather at the end of a week of big gains propelled by a strike in Norway that raised the prospect of supply from the major producer being slashed by up to 25%.

"This could see almost one million barrels a day of crude oil impacted," ANZ Research said in a note.

Norwegian oil company and labor officials said they will meet a state-appointed mediator on Friday in an attempt both sides hope will bring an end to a strike that threatens to strip out about a quarter of the country's oil and gas output.

Output Halted by Hurricane Delta

Traders are also bracing for the impact on U.S. production of Hurricane Delta, forecast to strike the Gulf Coast within hours. Nearly 1.5 million barrels of daily output has been halted so far.

This has now become a short-term event. Traders will be watching closely for any damage that could knock the platforms out for several days or weeks. Otherwise, companies will start implementing plans to restart production once the hurricane has safely passed.

Weekly Technical Analysis

Weekly December WTI Crude Oil

Trend Indicator Analysis

The main trend is up according to the weekly swing chart, however, momentum is trending lower. A trade through $44.33 will signal a resumption of the uptrend. A move through $25.31 will change the main trend to down.

The minor trend is down. This is controlling the momentum. The minor top is $42.02. Taking out this level will change the minor trend to up and shift momentum to the upside.

The main range is $59.51 to $25.31. Its 50% to 61.80% retracement zone at $42.41 to $46.45 is the major resistance.

The short-term range is $25.31 to $44.33. Its retracement zone at $34.82 to $32.58 is a potential support zone. Since the main trend is up, buyers are likely to come in on the first test of this area.

Weekly Technical Forecast

Momentum is controlling the price action rather than price levels. This week's strong momentum has put the market in a position to take out the minor top at $42.02. This will shift momentum to the upside. This will be our area of focus next week.

Bullish Scenario

A trade through $42.02 will indicate the presence of buyers. This will change the minor trend to up and shift momentum to the upside. This is likely to trigger a surge into the main 50% level at $42.41. Overtaking this level will indicate the buying is getting stronger. This could create the upside momentum needed to challenge the main top at $44.33.

A trade through $44.33 will signal a resumption of the main trend after six weeks of sideways-to-lower price action. This could lead to a test of the main Fibonacci level at $46.45.

Bearish Scenario

The inability to overcome $42.02 will signal the presence of sellers. This will indicate that sellers are defending the retracement zone at $42.41 to $46.45 and the main top at $44.33.

The first downside target is a minor pivot at $39.48. If this price fails as support then look for the selling to possibly extend into the minor bottom at $36.93.

If $36.93 fails as support then look for a break into the short-term retracement zone at $34.82 to $32.58.

Short-Term Outlook

We could see a short-term top on Friday if the news reports are true. The head of the Lederne trade union told Reuters that Norwegian oil workers could end their 10-day strike later on Friday if a set of new proposals from the oil industry proves satisfactory.

The absence of damage to oil platforms in the Gulf of Mexico from Hurricane Delta could also encourage profit-taking that could lead to a short-term top.

Although a top seems to be imminent, losses could be limited by speculation that U.S. policymakers are getting close to reaching a new stimulus deal. Nonetheless, there are still serious problems with demand that could also encourage a fresh round of selling pressure.

WTI crude oil futures will move as high as speculators are willing to take it, while keeping in mind that the hurricane impact will vanish in about 3 - 4 days and the strike could end quickly if reports are accurate. In other words, these are not likely to be long-term bullish events.

Meanwhile, the U.S. stimulus plan is still up in the air, COVID-19 demand issues still linger, global supplies are high and OPEC now faces a new challenge from rising output in Libya, an OPEC member exempted from cutting output.

All of the above factors are likely to cap gains and could drive prices lower once the hurricane and strike are in the books. All bets for a short-term top will be off, however, if the strike continues into next week.

These potentially bearish events could combine with the technical chart pattern showing major resistance at $42.41 to $46.45. Essentially, we're going to have to see improving demand in order to overtake this area and trigger a breakout to the upside.