A Higher Bottom Formed, Prices Still Have Upside Before Reaching Overbought Territory

Eva Chen

Commodity

Central Bank

Economic

Summary:

WTI crude oil remained above $76 per barrel after falling 1% at one point earlier. PKN Orlen SA, Poland's largest oil company, unexpectedly stopped receiving crude oil from Russia via the Druzhba pipeline. Nevertheless, traders are concerned that U.S. inflation remains high and will force the Fed to continue raising interest rates, which could boost the USD, trigger a U.S. recession and hurt energy prices.

BUY WTI

Close Time

CLOSED

74.300

Entry Price

79.200

72.200

57.233 -0.408 -0.71%

58.7

Pips

Profit

72.200

74.887

Exit Price

74.300

Entry Price

79.200

Fundamentals

Crude oil prices have been fluctuating within a narrow $10 range so far this year as investors weigh conflicting forces, including the Russian supply outlook, China's reopening, and the trajectory of monetary policy.

So far, an unexpected uptick in U.S. inflation has caused the market to make a fresh adjustment to expectations for a Fed rate hike. And any better-than-expected economic recovery is likely to continue to support the outlook for energy demand.

Oil prices were largely flat in early trading on Monday as Russia's plans to further cut back with crude supplies continued to support prices. While the EU has banned shipments of Russian crude and oil products by sea, some pipeline flows remain in place.

This follows Russia's plan to cut oil exports from western ports by up to 25% in March compared to February, exceeding the 5% cut announced earlier.

Meanwhile, rising global inflation risks and rising U.S. crude inventories are putting upward pressure on crude oil prices.

Despite U.S. oil inventories reaching their highest level since May 2021 and Federal Reserve minutes last week hinting at further monetary tightening, oil prices pared some gains shortly after a modest advance in early trading Monday.

Oil prices now appear to want to stay within a trading range until the market has a clearer forecast on the prospect of China reopening and how severe a recession the Fed will inflict on the U.S. economy.

Upcoming inventory reports from the American Petroleum Institute and the Department of Energy on Tuesday and Wednesday could cause crude oil prices to fluctuate around the middle of the week. Lower inventories may reassure investors that demand remains supported, while the reduction in inventories may also highlight buying weakness. Watching for price spikes and pullbacks is needed.

Risk sentiment may also drive energy prices higher as recent market attention has focused on the prospect of higher borrowing costs.

WTI: A Higher Bottom Formed, Prices Still Have Upside Before Reaching Overbought Territory_1

Technical Analysis

WTI crude oil has formed a higher bottom and found support near $74.00, forming an ascending triangle pattern in its 4-hour chart, with prices bouncing off support and possibly setting sights on prior resistance again.

Technical indicators suggest that resistance is more likely to continue to the upside after a retracement rather than hold. While the 100 SMA is below the 200 SMA to confirm that the path of least resistance is to the downside, the 200 SMA is aligned with the top of the triangle at $78.00 to add strength to it as a ceiling.

The stochastic oscillator is also near overbought territory to confirm that bullish pressure is fading and that upward momentum could resume subsequently. On the other hand, the RSI still has more upside before reaching overbought territory, so bulls can stay longer until prices reach near $74.00 to confirm the long entry without breaking the level.

If crude oil prices hold the previous low of $73.78, it may form a double bottom with the same height of the rebound. It is recommended to buy the dips.

Trading Recommendations

Trading Direction: Long

Entry Price: 74.60

Target Price: 79.20

Stop Loss: 72.20

Valid Until: 2023-03-13 23:55:00

Support: 73.78, 72.25, 70.04

Resistance: 76.78, 77.25, 78.25

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