Oil poised for breakout: Key support levels tested
Oil prices have retreated to their lowest levels since late March, approaching a critical support level.
WTI barrels dipped to $80.60 early on Monday. The price found support at the $80.0-$80.50 zone a month ago before accelerating higher and breaking through the resistance of the ascending channel. Last week's sell-off pushed the price back into this channel.
The macroeconomic backdrop is stacked against bulls: US oil inventories are rising, the number of oil rigs is higher than at any time since September, and the IMF is forecasting an increase in OPEC+ quotas from mid-year. The dollar is strengthening, and stock indexes are falling, adding pressure to the price.
The price per barrel is testing the 50-day moving average (currently at $80.60). A close above it in January sparked a three-month rally.
Through 80.60, just $1 below, lies the 200-day moving average. A break below it could signal a shift in the long-term trend. In the past two years, there has been a surge in volatility after touching the 200-day average: the market either broke decisively above it or bounced sharply off it.
These days, the 200-day moving average coincides with the 61.8% Fibonacci retracement level from the December lows to the April peak. A break below would suggest a resumption of the long-term downtrend, bringing prices back to cycle lows around $70. The ability to hold above the 200-day moving average would suggest a Fibonacci extension with a potential upside target near $100.
Thus, the oil price action in the coming days deserves attention from both traders (promising volatility) and investors, as it will determine the long-term trend.
Author
Alexander Kuptsikevich, a senior market analyst at FxPro, has been with the company since its foundation. From time to time, he gives commentaries on radio and television. He publishes in major economic and socio-political media.
