Crude Oil Price Extends Rebound; But For How Long?

WTI Crude Oil price
WTI Crude Oil

Crude oil price on the Brent benchmark is extending gains for the 2nd day in a row, after US President Trump’s threat to sink Iran’s warships provided a knee-jerk recovery in crude oil price. Brent crude currently trades at $22.30, representing a gain of 7.38% on the day. However, recovery trade volumes continue to remain low and open interest data from the CME Group shows a continued decline up until the November 2020 contract, as shown below.

Month Total Volume Open Interest at Close
JUN 20 1,235,218 379,358
JUL 20 530,395 376,595
AUG 20 225,630 156,007
SEP 20 150,342 180,866
OCT 20 43,716 102,694
NOV 20 26,820 92,835
DEC 20 145,573 286,686

 

 

 

The picture on the open interest is a reflection of the sentiment of institutional crude oil traders. Crude oil price is not expected to make significant recovery to the price levels at which it traded during the initial US-Iran conflict some months ago until the coronavirus pandemic is contained and regular demand starts to get restored.

Download our Q2 Market Global Market Outlook

Crude Oil Price Technical Outlook

Tuesday’s price collapse took the Brent crude oil price benchmark below the descending channel and down to the previous lows of 2001. However, price was able to stage a recovery on the US threat and this has extended into the 2nd day. But truth be told, volumes are low and the upside move is struggling for conviction.

There are yet no indications of any interventions to boost storage or to start reducing production before the kick-in date of the OPEC + agreement to reduce output by 10 million barrels.

The initial resistance to the recovery lies at the 22.32 mark, which is where the Nov 2002 lows are expected to act in role reversal as a resistance. If the price recovery overcomes this resistance, 24.68 and 28.83 could come into focus as new resistance targets. However, the latter will only be a feasible target if price is able to traverse the descending channel. True recovery on crude oil price may be considered if the previous lower highs at 38.56 and 35.61 are breached to the upside.

On the flip side, the core technical of the asset at the moment could be brought to bear on price action. This sentiment will seek to sell on rallies, which may present renewed price pressures to any of the recent downside targets already seen in the last week. Failure to break the 22.35 price resistance (Nov 2002 lows) or rejection at the channel’s borders may allow prices to resume the bearish turn towards 16.92, which served as this week’s support. A breakdown of 16.92 (Oct 2001 lows) may be the trigger for crude oil price to resume a run towards the 1998 lows.

Don’t miss a beat! Follow us on Telegram and Twitter.

More content