Crude oil price continues its months-long consolidation and remains stuck at the $40 level. Despite the technical picture looking bullish, there is little or no movement on the market as all eyes are on the global economic recovery and the pandemic.
The price of oil depends a lot on the economic evolution. If the global economy recovers faster than expected, the crude oil market is the first one to reflect it. However, the advance of the pandemic in the Western countries and the strength of the second wave of infections makes it difficult to for demand for oil to pick up. If anything, new lockdown measures seem inevitable in Western Europe, although the restrictions seem to be only local ones for now.
OPEC Monthly Oil Market Report Points to Lower Demand
OPEC just released its monthly oil report for October 2020. It revised down both demand for the rest of the year and the economic growth seen in 2021.
The danger moving forward towards the end of the trading year is that the virus headlines will affect economic recovery. Despite strong Chinese demand, stronger economic recovery from the Western world is needed for the price of oil to break above $50.
Crude Oil Pennant Formation
Regardless of how one looks at the price of oil from a fundamental perspective, the technical perspective looks bullish. The consolidation just below previous support turned into resistance shows a resilient market. Also, the consolidation resembles a contracting triangle.
Whenever a contracting triangle forms at the end of steep advance as the one seen in the chart below, the market prepares for the next leg in the same direction. Typically, the longer the consolidation, the stronger the breakout will be.
The right positioning for bulls would be to wait for a proof of life. Effectively, it means to wait for the price to clear $45, place a stop at $40 and target a move beyond $55 and more.
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Crude Oil Price Forecast
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