WTI oil is in free fall. Will it reach 60 USD?

August 09, 2021 13:07

After the lows caused by the coronavirus pandemic, West Texas Intermediate (WTI) oil has been on a bullish rally.

This rally has taken crude oil prices from the lows of $6.50, recorded in April 2020, to $77 per barrel in early July this year. This represents an increase of more than 1000% in just over a year.

However, it seems that the market is beginning to emit signs of exhaustion.

The sharp increase in price of crude oil presents a risk for every economy on the planet by exerting pressure on inflation. This is why, in July, OPEC announced measures to increase production and try to slow the increase in price.

However, once again, it is the coronavirus pandemic that has had an impact of slowing the rise in price of oil. The rapid spread of the new and more infectious delta variant has dampened the prospects of oil demand in the future, as fears arise of new mobility restrictions.

In addition, oil supply increased significantly and unexpectedly last week - as shown by the U.S. Crude Oil Inventories report, published on Wednesday by the Energy Information Administration (EIA).

Source: Admirals MetaTrader 5 - WTI Weekly Chart. Data range: from 26 January 2020 to 9 August 2021, conducted on August 9, 2021 at 8:30 am CET. Past performance is not a reliable indicator for future results. 

The chart above shows the weekly evolution in the price of a barrel of WTI crude oil.

Straight away, it is easy to see that for most of the last year there has been a marked upward trend, as reflected in the exponential moving averages of 5 periods (brown), 10 periods (orange), 20 periods (red) and 50 periods (green).

However, in recent weeks they have started to change their inclination and/or direction.

Shorter moving averages contract faster than those with a greater number of periods. As a result, crosses are occurring between them - which traders interpret as sell signals.

Without a doubt, WTI oil is one of the assets that could see greater volatility this week, with some traders looking for new reference levels of where to re-enter the market in a bearish scenario – which is something that could happen at the psychological barrier of 60 dollars per barrel, a level that is located in the 23.6 Fibonacci retracement.

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Javier Oliván
Javier Oliván Financial Analyst and Content Creator, Admirals Spain

Javier is an economist specialized in international economics, with a master's degree in international trade and a passion for financial markets, where he has been investing for more than 15 years.