Crude Oil – Weekly Analysis, 30/07

Jul 30 2015, 7:10 am
Crude Oil

Crude Oil could correct to $51!

WTI Crude Oil prices got a boost after the US energy information administration reported the weekly inventories which saw a surprise drop in Crude Oil stockpiles which fell by 4.2 million barrels during the week ending July 24th. However, despite the fall, the Crude Oil stockpiles continue to remain at elevated levels in over 80 years. It was also reported that Saudi Arabia, the largest producer of Crude Oil was going to cut back production after summer. The continued but modest rally in Crude Oil comes in the backdrop of a Federal Reserve plans for rate hikes later this year.

Crude Oil prices were seen to be stabilizing this week after a prolonged decline for the past four weeks. This week, Crude oil posted a low of 46.69 but is trading at $48.83, up by 1.56% for the week. A weekly close above $49.15 is needed to validate the bias for a correction that could see Crude oil correct to as far as $54 in the long term weekly charts.

Crude Oil Technical Analysis

The weekly chart for Crude Oil shows the all important support/resistance level of $49.15 ahead of a retest to the previously broken support at 54, which could be tested for resistance.

Crude Oil, Weekly Chart – 30/07
Crude Oil, Weekly Chart – 30/07

On the daily charts, we notice a reversal pattern being played out right near the identified support level of $47.81 through $47.28 which saw a follow through by a strong bullish candlestick pattern. There is a risk of a minor dip back to $47.81, but overall, we can expect a rally that could take prices to a minimum of $50.95 where the next level of broken support remains to be tested for resistance. The corrective move could however remain invalidated in the event prices fail to rally and closer lower below the previous lows near $46.75.

Crude Oil – Daily Chart, 30/07 – Price near support
Crude Oil – Daily Chart, 30/07 – Price near support

Switching to the H4 time frame, we can now see the reason why we expect Crude Oil prices to post a correction. The lows below $46.5 failed to confirm the lows in the RSI which instead posted a higher low. This bullish divergence gives an upside correction that could most likely end near $51.31, but risks an upside breakout that could take prices as far as up to $55.6 where an unfilled gap remains.

Crude Oil H4 – Bullish Divergence to RSI
Crude Oil H4 – Bullish Divergence to RSI

A brief retest down to 48.35 through 47.85, if successful will most likely confirm the corrective moves ahead. In terms of fundamental risks, the US GDP data is due later this evening which could bring some additional volatility to the markets. A strengthening US Dollar could potentially impact the Crude Oil prices among other things which could pose the risk of Crude oil posting new fresh lows while the bullish divergence on the RSI continued to build up.

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John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.

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