Is oil readying for a 20% technical drop?
The price of West Texas Intermediate (WTI) crude oil has surged higher more than 500% since the lows of the pandemic in March 2020. Demand for crude oil has rapidly increased as countries roll out the coronavirus vaccine and get their economies moving once again.
Oil prices received a further boost earlier this month after OPEC and Russia mutually agreed to not increase the output. This is after the supply curbs that were initiated by the countries to help rebalance the oil market after dropping to an 18-year low last year.
Source: Admiral Markets MetaTrader 5, CRUDOIL, Monthly - Data range: from Jan 1, 2007, to Mar 9, 2021, performed on Mar 9, 2021, at 8:30 pm GMT. Please note: Past performance is not a reliable indicator of future results.
In the long-term, monthly price chart above it is clear to see the recent surge higher. However, from a technical perspective, the price now sits at historical horizontal resistance at ~$64.00. Sellers have turned up at this level in both 2019 and 2020.
We are now back at this level in 2021 and some traders may well be looking to enter short positions yet again. However, the context is very different now then it was in the past. Analysing price action for clues on whether sellers are likely to turn up again will be key.
Source: Admiral Markets MetaTrader 5, CRUDOIL, Weekly - Data range: from Sep 10, 2017, to Mar 9, 2021, performed on Mar 9, 2021, at 8:35 pm GMT. Please note: Past performance is not a reliable indicator of future results.
In the weekly price chart of WTI crude oil above, the horizontal resistance line is clear to see. While there are not many analysts with bearish views on oil prices, market positioning may become an issue as the market is heavily long.
Any small news announcement could, therefore, have a much larger impact. Traders may look for technical confirmations of sellers stepping at this horizontal resistance line by identifying double top patterns, indicator divergence, bearish engulfing bars and many other common reversal patterns.
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