WTI tumbled yesterday despite the agreement between OPEC and its allies to extend their production cuts by nine months. It seems that, in a still oversupplied market and in the face of weaker demand –fears of which rose after the disappointing manufacturing PMIs worldwide –, investors are finding it hard to believe that a 9-month extension would be enough to support prices. Or, it could be just a “sell the fact” reaction as a 6- to 9-month extension was already signaled from the weekend.
From a technical standpoint, the slide brought the black liquid below the support (now turned into resistance) barrier of 57.75, and it was paused near 56.10. Then, it rebounded somewhat. The break below 57.75 has confirmed a forthcoming lower low on the 4-hour chart and in our view, has turned the short-term outlook to the downside.
That said, given that the fall appears overstretched, we see the case for the current corrective rebound to continue for a while more before the bears regain control. The recovery could test the 57.75 zone as a resistance this time, from where the bears may jump back into the action and push lower for another test near 56.10. If they prove strong enough to overcome that hurdle, then we may see them putting the psychological zone of 55.00 on their radars, or the 54.55 barrier, which provided resistance on June 18th and 19th.
Looking at our short-term oscillators, we see that the RSI hit support near its 30 line and turned up, while the MACD, although below both its zero and trigger lines, shows signs that it could also start bottoming soon. These indicators detect slowing downside speed and support our view for some upside correction before, and if, the bears decide to take the reins again.
In order to start examining whether the near-term outlook has turned positive, we would like to see a decisive recovery above the round figure of 60.00. Such a move could confirm a forthcoming higher high and could initially aim for the 61.00 zone, which proved a good support between May 7th and 15th. Another break, above 61.00, could carry larger bullish implications, perhaps paving the way towards the 62.60 area, marked by the inside swing low of May 20th.
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