Oil Price Analysis: on the defensive after rising wedge breakdown

Omkar Godbole FXStreet Contributor

WTI oil could be in for a price pullback, having witnessed a downside break of the rising wedge pattern on Tuesday.

As of writing, oil is trading at $69.24/barrel. The front-month contract clocked a high of $69.80 yesterday before closing at $69.05.

OIl prices reported modest gains on Tuesday, courtesy of Iran sanctions and drop in US oil stocks.

The American Petroleum Institute (API) reported yesterday a crude oil inventory draw of 6 million barrels of United States crude oil inventories for the week ended Aug 4.

Having introduced the first batch of sanctions against Iran on Tuesday, the US government now looks set to target Iran's energy sector in November. The resulting drop in Iranian supplies, a major exporter of crude oil, could push prices well above $80.00 unless there is evidence of OPEC, Russia and/or the US compensating for the loss in Iranian oil supplies.

It is worth noting that US oil supplies had flooded Italy in July as the unrest in Libya had cut off its deliveries to European nations. Clearly, the US oil industry is now able to serve as an alternative source of light, sweet crude.

Hence, oil traders would focus on the official US fuel storage data, scheduled to be released later today by the Energy Information Administration (EIA). Oil prices may drop sharply if the EIA data shows a big jump in oil inventories.

Hourly chart

The rising wedge breakdown indicates the corrective rally from the Aug. 2 low of $66.90 has ended and has poured cold water over the optimism generated by last Thursday's big bullish outside-day candle.

The bearish pattern has opened the doors to re-test of the Aug. 2 low of $66.90.

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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