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Crude Oil Prices Weighed by Demand Concerns, Rising US Dollar

CRUDE OIL OUTLOOK:

  • WTI crude oil prices plummeted 4% as stocks fell, US Dollar rose
  • Demand outlook is dampened by plans for further lockdowns in the EU
  • Bollinger Band and “Death Cross” flag more downside risk

WTI crude oil prices (WTI) registered their largest single-day decline in two weeks, falling as much as 6% before pairing some losses and closing 4% lower. A resurgence of coronavirus cases and a potential lockdown in part of the EU is weighing energy demand outlook, overshadowing a fragile economic recovery. US Dollar’s strengthening put more pressure on commodity prices, with gold and silver falling alongside crude oil prices.

Meanwhile, a pending US fiscal stimulus package dwindled hopes for more spending in the near term. However, the approval of the spending bill will likely give energy prices a boost when it is eventually inked.

An online meeting held by OPEC+ members last Thursday didn’t reveal a solid production cut plan, but it raised hopes that the committee will closely monitor the outlook for demand and may deepen production cuts when necessary. Recently, IEA and OPEC have both trimmed their outlook for crude oil demand this year.

IG Client Sentiment indicates that sentiment is mixed among oil traders, with 60% of the position net long, while 40% are net short. As oil prices fell, traders trimmed some short positions while adding some long positions overnight. Compared to a week ago, however, traders are still building up short bets while cutting long positions.

Crude Oil Prices Weighed by Demand Concerns, Rising US Dollar

Volatility in crude oil prices has spiked, with the width of the Bollinger Band widening in the past two weeks (chart below). WTI is testing its 20-Day Simple Moving Average (SMA) line at US$ 39.6. A price reversal back below the middle Bollinger Band (also a 20-Day SMA) may flag more downward risk in the short term.

Technically,the WTI crude oil price failed to break its 50-Day SMA and reversed lower. Its 20-Day SMA has crossed below both the 50- and 100-Day SMA, potentially forming a “Death Cross”. The WTI may find an immediate support level at US$ 39.7 (20-Day SMA) and then a major support level at US$ 36.4 (50% Fibonacci retracement).

WTI Crude Oil PriceDaily Chart

Crude Oil Prices Weighed by Demand Concerns, Rising US Dollar

— Written by Margaret Yang, Strategist for DailyFX.com

To contact Margaret, use the Comments section below or @margaretyjy on Twitter