Crude oil price is under pressure today as investors react to news that the world economic recovery is slowing down. Brent crude oil is down by 0.60% at $44.65 while West Texas Intermediate (WTI) price has dropped by 0.70% at $42.6.
Crude oil price has been in a strong upward trend in recent months because of hopes that the world is in a recovery path. WTI has managed to move from the negative level to the current level of $42. One reason for this is that investors have placed their bet that the world economy will recover, leading to increased demand.
However, economic data released today shows that the recovery seems to be stalling. According to Markit, the manufacturing PMI number in the European Union increased to 51.7 in August. That was lower than the previous 51.8. Services PMI has also declined from the previous 54.7 to 50.1.
These numbers came at a time when the number of coronavirus infections in Europe has been rising. The seven-day moving average of new cases has increased by more than 50% since the end of July. Similarly, the number of cases in Australia and New Zealand has also been rising.
But there is hope. In a statement, Pfizer and BioNTech said that they have made strong progress in their vaccine. The two companies expect to get regulatory approval in the next few months. A vaccine is a good thing for crude oil price because it would boost confidence in the market.
Brent crude oil price forecast
The daily chart below shows that Brent crude oil price has been in an uptrend since bottoming at $16.50 in April. In recent weeks, however, the strength of the upward trend has been relatively slow. As such, the price has been forming a rising wedge pattern.
As you can see in our free trading course, a rising wedge pattern is usually a bearish signal. This week, the price has moved slightly below the lower side of the wedge. Brent crude oil price is also slightly above the 50% Fibonacci retracement level. Therefore, I suspect that the price will fall in the near term and possibly reach $40.
On the flip side, a move above $46.50, which is the upper side of the wedge pattern will invalidate this downtrend thesis.