Last week’s trading session saw the WTI Crude Oil Futures (NYMEX: CL) rise by an astounding 4.55%, marking the oil futures’ fifth straight week of advances. The Saudi Arabian supply curbs had been anticipated to be extended into September, while the outlook for demand has improved, further boosting oil futures.
The Federal Reserve increased interest rates by 25 basis points last week and announced that it would base its decision on data at its forthcoming rate meeting, sending a message to the market that the aggressive rate-hiking cycle may be drawing to an end. Additionally, the Federal Reserve’s preferred inflation indicator, the year-over-year PCE Price Index, dropped from 3.8% to 3%, thus opening the door for a less stringent policy that could improve the outlook for crude oil demand in the near future.
Technical
The WTI Crude Oil Futures have pointed northward, trading well above the 100-day moving average as the uptrend takes shape. The breakout above the last significant swing high at $77.30 per barrel (BLL) validated that bullish traders currently have the upper hand. Support was established at the $74.52 BLL level, while April 2023’s peak at the $83.53 BLL level formed resistance.
Given that the Relative Strength Index has remained at overbought levels for extended periods, momentum is likely leaning towards the bulls. If the upside momentum persists, a high volume breakout above the 38.20% Fibonacci Extension level could expose the oil futures to further upside possibilities, with the Golden Ratio, at $81.89 BLL, a likely point of interest.
In contrast, if upside momentum falters, a reversal could play out from overbought Relative Strength conditions. The last minor swing low at the $78.61 BLL level will likely attract traders pessimistic over the crude oil supply and demand dynamics.
Summary
Despite the boost from the supply-side constraints and the likelihood of a less restrictive U.S. interest rate policy outlook ahead, the oil futures upside will likely be challenged by the weakened manufacturing activity in the biggest crude oil importer in the world, China. Key events likely to affect sentiment for the week will be the U.S. Nonfarm Payrolls. The 38.20% level at $80.63 BLL will likely act as a pivot between bullish and bearish sentiment in the short term.
Sources: U.S. Bureau of Economic Analysis, Reuters, TradingView
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