Introduction
Crude oil prices have been falling recently due to a combination of factors. One major reason is the slowing demand from China, which has been experiencing economic challenges, particularly in its real estate sector and a growing shift towards electric vehicles. As one of the largest consumers of oil, any slowdown in China significantly impacts global demand projections. OPEC has responded by cutting its 2024 demand forecast, further contributing to the drop in oil prices.
Additionally, U.S. oil production has reached record highs, creating a supply surplus. This increased supply, combined with weaker demand, has exerted downward pressure on prices. Despite OPEC+ delaying its planned production increases, the abundant supply from non-OPEC countries like the U.S. is keeping prices low. Market analysts expect oil prices to remain under pressure unless there’s a significant change in geopolitical dynamics or a boost in demand.
Technical Analysis
The technicals are saying the same thing… CL is falling, and it looks like there is still more room for it to fall. The bias is bearish according to the 50 and 100 simple moving averages and the MACD. The MACD crossed negative back at the start of August and has remained below the zero line ever since. Only once we see this start moving back above the zero line can we say the downtrend could be over, or at least moving into a consolidation phase.
With that being said, let’s look for some possible trades we can take.
Bullish and Bearish Cases
Bearish Case
- If price breaks below the $69.95 support level, there is a high probability of it heading towards S2 at $66.36, and in an extended bearish case, it may even test the S3 at $61.25.
- High-probability bearish trade:
- Entry: Below $69.95 (confirming the breakdown).
- Target 1: $66.36 (S2 support).
- Target 2: $61.25 (S3 support in a bearish extension).
- Stop-Loss: Above $73.63 (near 200-day SMA to manage risk).
Bullish Case (Reversal Play)
- For a bullish trade, price would need to hold above $73.63 and break above $75.30.
- In case of a breakout above the resistance level of $75.30, the next target would be $78.45 (R1).
- High-probability bullish trade (less likely at this stage):
- Entry: Above $75.30.
- Target: $78.45 (R1 pivot) and higher.
- Stop-Loss: Below $73.00 to mitigate risk in case of rejection.
- For this bullish trade, it does mean we would be buying slightly higher than the low but it would be a higher probability trade because we would have confirmation that the downgrade is weakening significantly. We see no need to fight the trend, so if it is down, we should focus more on short trades.
