WTI bulls may be running against the wind while price is respecting trendline support

  • WTI price could be picking-up some last-minute liquidity into a block of resistance.
  • Bears will be prudent to sit on the sidelines and await a break of the support structure and bearish technical readings. 
  • Bulls will be looking for a strong weekly close above 41. 

The price of oil is trading on the bid around $40.47 at the time of writing, some 0.95% higher having travelled from a low of $39.80 and scoring the highest levels since the 21st Sep. 

The demand recovery has been slowing in energy markets as investors price in the risk of the second wave of COVID-19s impact on the global economic rebound. 

With the surges in cases throughout Europe and in various parts of the globe, social distancing measures and travel restrictions have dented the progress in the demand recovery in the energy markets.

Mid-month, WTI rallied strongly from the depths of the $37 areas to a high in the $41 levels as risk appetite improved broadly across the financial and commodities market.

At the same time, there had been heavy declines in oil inventories and OPEC+ compliance was above 100% for the prior month.

The OPEC put

Optimistically, analysts at TD Securities expect that the balance of risks is tilted towards the right-side tail:

''A continued economic normalization and potential vaccine announcement in the months ahead offer a possibility of an upside surprise for demand.''

''At the same time, the weakened shale production profile and the implied OPEC put mitigate downside risks associated with a slower demand recovery.''

With OPEC+ set to taper its historic deal once more in December, easing the production quota by 2m bpd, the market may begin looking for signals the cartel is willing to delay or otherwise alter the tapering to avoid disrupting the delicate Great Rebalancing process, particularly as Libyan production returns to the market,

analysts at TD Securities said. 

WTI levels

However, from a technical standpoint, the path of least resistance is to the downside from a longer-term review of the price action.

As per the start of the week's analysis, WTI Price Analysis: Bears lining-up for the 'Kill Zone', the upside move was expected and the downside has been mapped-out.

The price has given even more to the downside case considering how deep of a correction of the monthly impulse it was, all the way to the 61.8% Fibonacci retracement. 

As can be seen, the price has paused at the 61.8%Fibo' and prior structure. 

Not only that, the monthly chart, which has just 2 days and 5 hours to go until the close, has left a compelling downside wick.

The significance of that is if the candle closes and leaves a wick of at least 50% of the body, it is highly probable that the wick will be filled-in on the next candle.

The wick is essentially a weekly upside correction.

After a correction, we expect a continuation of the dominant force which, in oil's case, is currently to the downside.

Downside forces

However, for the meanwhile, the price is respecting the trendline's support:

4-hour chart

Bears will be waiting for the perfect storm with stars aligning below structure as illustrated above with a high probability trade setup to the downside. 

On the other hand, if the price manages to close the week and months firmly above $41.50, the downside case will be invalidated, at least for the meantime. 

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