Oil Ready for a Breakout?
Oil fell 1.7% on Friday to close at 2 week lows of 67.21, as traders digested OPEC+’s decision from the day before, to postpone planned production increases from January to April 2025.
While this OPEC+ move was widely seen as a positive attempt to address the current expected Oil surplus moving into next year, it seems the initial assessment was that it’s probably unlikely to go far enough to absorb extra production from the Americas and a slowdown in Chinese demand in the short term.
So, could this negative sentiment continue to weigh on Oil?
It’s a big week ahead, with the Bank of Canada (BoC), Swiss National Bank (SNB), and European Central Bank (ECB) all expected to cut interest rates between 25bps (0.25%) and 50bps (0.5%), which may provide a boost to Oil prices from Friday’s closing levels. However, any potential impact remains uncertain and will depend on broader market conditions and other economic factors.
Also, tomorrow China reports its trade data from November at 0300 GMT, which will provide an update on global and domestic demand. Then on Wednesday, top Chinese leaders will attend their annual Central Economic Work Conference, where they are expected to discuss the country’s growth target for 2025, alongside new stimulus measures to help hit that number. While this is a closed door event, any headlines outlining what was discussed could have a positive or negative impact on Oil prices later in the week.
On the technical front the charts also look interesting.
Since the 65.63 low in Oil on September 10th 2024, a period of choppy sideways activity has developed, as buyers and sellers have matched one another. This has been reflected by a converging triangle pattern, the extremes of which to start the week outline the 67.08 level as possible support, and the 69.46 level as potential resistance.
The converging trendlines on the chart above, suggest that while buyers have appeared at a slightly higher level each time, the steeper slope of the downtrend connecting recent highs, indicates it takes less of a rally in price for sellers to appear once more.
This selling pressure following Wednesday’s test of the downtrend on the chart above, saw last week end with fresh tests of the 67.08 trendline support, which is now the focus this week. How this level is defended on a daily closing basis, may offer clues to future directional moves.
Of course, there is no indication when or if a breakout from this pattern will materialise and no guarantee that if one is seen, it will result in a sustained move. However, closes below 67.08 may see more extended weakness, but that is very much dependent on future price trends.
If a confirmed break lower does materialise, the risks could be to test what might prove next support marked by the 65.63 September 12th low, possibly even towards 63.68, the May 2023 extreme.
We stress breaks of support haven’t yet materialised, and while this holds, its possible strength can be seen once more to challenge the 69.46 downtrend resistance level.
If activity is to turn towards possibilities of a more extended recovery, closes above this 69.46 level are required, which may in turn lead to tests of what could be resistance marked by the 71.57 November 25th session high.
The material provided here has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research we will not seek to take any advantage before providing it to our clients.
Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. It does not take into account readers’ financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of Pepperstone, reproduction or redistribution of this information isn’t permitted.
While this OPEC+ move was widely seen as a positive attempt to address the current expected Oil surplus moving into next year, it seems the initial assessment was that it’s probably unlikely to go far enough to absorb extra production from the Americas and a slowdown in Chinese demand in the short term.
So, could this negative sentiment continue to weigh on Oil?
It’s a big week ahead, with the Bank of Canada (BoC), Swiss National Bank (SNB), and European Central Bank (ECB) all expected to cut interest rates between 25bps (0.25%) and 50bps (0.5%), which may provide a boost to Oil prices from Friday’s closing levels. However, any potential impact remains uncertain and will depend on broader market conditions and other economic factors.
Also, tomorrow China reports its trade data from November at 0300 GMT, which will provide an update on global and domestic demand. Then on Wednesday, top Chinese leaders will attend their annual Central Economic Work Conference, where they are expected to discuss the country’s growth target for 2025, alongside new stimulus measures to help hit that number. While this is a closed door event, any headlines outlining what was discussed could have a positive or negative impact on Oil prices later in the week.
On the technical front the charts also look interesting.
Since the 65.63 low in Oil on September 10th 2024, a period of choppy sideways activity has developed, as buyers and sellers have matched one another. This has been reflected by a converging triangle pattern, the extremes of which to start the week outline the 67.08 level as possible support, and the 69.46 level as potential resistance.
The converging trendlines on the chart above, suggest that while buyers have appeared at a slightly higher level each time, the steeper slope of the downtrend connecting recent highs, indicates it takes less of a rally in price for sellers to appear once more.
This selling pressure following Wednesday’s test of the downtrend on the chart above, saw last week end with fresh tests of the 67.08 trendline support, which is now the focus this week. How this level is defended on a daily closing basis, may offer clues to future directional moves.
Of course, there is no indication when or if a breakout from this pattern will materialise and no guarantee that if one is seen, it will result in a sustained move. However, closes below 67.08 may see more extended weakness, but that is very much dependent on future price trends.
If a confirmed break lower does materialise, the risks could be to test what might prove next support marked by the 65.63 September 12th low, possibly even towards 63.68, the May 2023 extreme.
We stress breaks of support haven’t yet materialised, and while this holds, its possible strength can be seen once more to challenge the 69.46 downtrend resistance level.
If activity is to turn towards possibilities of a more extended recovery, closes above this 69.46 level are required, which may in turn lead to tests of what could be resistance marked by the 71.57 November 25th session high.
The material provided here has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research we will not seek to take any advantage before providing it to our clients.
Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. It does not take into account readers’ financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of Pepperstone, reproduction or redistribution of this information isn’t permitted.
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