The softening of US inflation, which suggested that the monetary policy tightening cycle in the US may be nearing its conclusion, has put negative pressure on the US dollar while sending the oil price sharply higher. The US Crude Oil Futures (NYMEX: CL) closed the Wednesday trading session 2.12% higher and a second consecutive trading session on the green as the commodity continues to recover some recent losses.

However, the concerns over a potential US recession and weaker oil demand capped the oil futures upside in the morning trading session on Thursday following a report that crude inventories grew instead of the analysts’ expectation of a substantial drop. The EIA reported on Wednesday that the crude oil inventories rose by 597 000 barrels last week versus the analysts’ expectations of a 600 000 barrels drop.

Technical

The 4H chart shows that the price action is currently trading at the 61.80% Fibonacci retracement level, which has previously seemed a barrier too significant for the bulls’ rally. Thus, the reaction of traders around the level could be critical to the price action movement during the trading session.

If the softening US inflation dominates the trading for the oil futures, then the bulls could look to push the price action towards the $84.73 a barrel resistance level, a level of significance for the bulls. A breakthrough in the initial resistance level, supported by significant volume, would bring the resistance level at $87.08 a barrel into play.

However, the failure of the bulls to push the price action substantially above the Fibonacci level could trigger bears run below. The support level at $81.52 a barrel would offer the first barrier to the run, with the next barrier being the $79.69 a barrel support level at the 50% Fibonacci retracement level.

Summary

The bets on the potential monetary policy and concerns over a possible US recession are likely to drive the movement of the commodity in the short run. Thus, a short-term trading opportunity could exist as the price action pulls back towards $81.52 a barrel if it initially fails to push above $83.03 a barrel substantially.

Sources: TradingView, CNBC, Reuters.

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