Chart Of The Day: Oil Prices Supported By Tropical Storm, OPEC, Technicals

  • Commodities Analysis
  • Editor's Pick

Crude oil climbed for the third day in a row yesterday, hitting a six-week high, as traders continue to track tropical storm Nicholas which is heading toward the US's Gulf Coast, a key oil production region that's still suffering from the battering it received from Hurricane Ida just a few weeks ago.

As well, OPEC just increased its global oil demand forecast for the next year to 100.8 million barrels—raising their forcast to almost another million barrels a day.

That's even higher than the pre-pandemic 2019 demand level of 100.3 million barrels a day. The oil cartel sees improving vaccination rates and rising public confidence in the way governments are handling the heath crisis, which should promote travel.

Also, from a technical perspective, oil bulls are taking charge.

Oil Daily

The bulls have now pushed the price through a series of presumable bearish strongholds:

  1. The price completed a pennant, bullish after the 9.7% surge in just three days, preceding the range. The stalemate creating the equilibrium is now seen to be over, with the bulls gaining the upper hand.
  2. The bulls also pushed the price above a falling channel, whose momentum was dominated by bears, seemingly till now.
  3. The price crossed above both the 50 and 100 DMAs, whose importance is compounded considering they flow into both the pennant and the top of the falling channel, while the 200 DMA supported the previous trough at the bottom of the channel and is rising.
  4. Momentum has just peaked over its highest level since July 30.
  5. If that momentum continues, it will provide the 'oomph' needed to complete a H&S bottom, against whose neckline the bulls are currently charging.

Trading Strategies

Conservative traders should wait for the H&S to complete, then post higher than the July 30 high (red dotted line), then wait for a return move to retest the pattern’s integrity.

Moderate traders would be content with a penetration of the $72.50 level and wait for a buying dip, if not for support confirmation.

Aggressive traders could buy now, going on the pennant-completion, whose upside breakout included that of the falling channel, the 50 and 100 DMAs, backed up by rising momentum.

Trade Sample

  • Entry: $70
  • Stop-Loss: $69
  • Risk: $1
  • Target: $74
  • Reward: $4
  • Risk:Reward Ratio: 1:4

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