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Crude Oil Price Recovery Takes Shape amid Failure to Test January Low

Crude Oil Price Talking Points

The price of oil extends the rebound from the monthly low ($76.25) following an unexpected decline in US inventories, and crude may stage a larger recovery over the coming days as it reverses ahead of the January low ($74.27).

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Crude Oil Price Recovery Takes Shape amid Failure to Test January Low

The price of oil trades to a fresh weekly high ($82.94) as it carves a series of higher highs and lows, and crude may continue to retrace the decline from the monthly high ($90.39) as data prints coming out of the US instill an improved outlook for energy consumption.

Recent figures from the Energy Information Administration (EIA) showed crude inventories contracting for the first time this month, with stockpiles narrowing 0.215M in the week ending September 23 versus forecasts for a 0.443M rise. Signs of resilient demand may influence the Organization of Petroleum Exporting Countries (OPEC) as the group reverts to its prior production schedule, and the group may offer a steady supply over the coming months as the rising interest rate environment across advanced economies dampen the outlook for global growth.

In turn, OPEC may follow a preset path as the most recent Monthly Oil Market Report (MOMR) insists that ““in 2023, expectations for healthy global economic growth, combined with anticipated improvements in the containment of COVID-19 in China, are expected to boost oil consumption,” and it remains to be seen if the organization will adjust its production schedule at the next Ministerial Meeting on October 5 as US output remains below pre-pandemic levels.

Until then, data prints coming out of the US may sway oil prices as a deeper look at the figures from the EIA show weekly field production narrowing to 12,000K in the week ending September 23 after printing at 12,100K for four consecutive weeks

With that said, recent developments may prop up the price of oil as expectations for robust demand are met with signs of limited supply, and crude may stage a larger recovery over the coming days amid the failed attempt to test the January low ($74.27).

Crude Oil Price Daily Chart

Source: Trading View

  • The price of oil carves a series of higher highs and lows as it reverses ahead of the January low ($74.27), and the bearish momentum may continue to abate as the Relative Strength Index (RSI) moves away from oversold territory.
  • The move back above the Fibonacci overlap around $78.50 (61.8% expansion) to $79.80 (61.8% expansion) brings the $84.20 (78.6% expansion) to $84.60 (78.6% expansion) region back on the radar, with the next area of interest coming in around $88.10 (23.6% expansion).
  • A move above the 50-Day SMA ($88.86) opens up the $90.60 (100% expansion) to $91.60 (100% expansion) area, but the price of oil may track the negative slope in the moving average like the price action seen last month.
  • Failure to hold above the overlap around $78.50 (61.8% expansion) to $79.80 (61.8% expansion) may push the price of oil back towards the $76.50 (50% retracement) to $76.90 (50% retracement) region, with the next area of interest coming in around $73.20 (38.2% expansion) to $74.40 (50% expansion), which lines up with the January low ($74.27).

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— Written by David Song, Currency Strategist

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