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Crude Oil Technical Outlook Underpinned by Resurgent Volatility

CRUDE OIL TECHNICAL FORECAST: OIL PRICES BRACE FOR BEARISH MOVING AVERAGE CROSSOVER

  • Crude oil price action has tumbled sharply lower over recent trading sessions
  • Rising market volatility threatens to continue weighing negatively on oil prices
  • A bearish ‘death cross’ of the 50-day and 200-day moving averages looms large

Crude oil prices notched a nasty start to October. The commodity is down nearly 8% over the last two trading sessions after falling over 5% last month. Recent bearishness exhibited by crude oil price action was hinted at in our 4Q-2020 oil technical forecast, which is available to download for free below.

Following a rejection of the $43.00-handle, a critical zone of technical resistance, the price of oil has faced considerable selling pressure and since been gravitating lower along its downward-sloping 200-day moving average.

CRUDE OIL PRICE CHART: DAILY TIME FRAME (19 MAY TO 02 OCTOBER 2020)

Crude oil price chart forecast

Chart created by @RichDvorakFX with TradingView

The steep slide to begin the month has steered crude oil toward the $37.00-price level, which is roughly underpinned by September swing lows. This level stands out as an intermittent area of buoyancy that could stymie recent selling pressure. As such, it is possible for crude oil price action to stage an intermittent relief bounce back toward the $40.00-handle.

Change in Longs Shorts OI
Daily2%10%5%
Weekly51%-16%22%

Nevertheless, bearish technical developments underscore growing potential for a moving average death cross of the 50-DMA below the 200-DMA, particularly after just breaching the 100-DMA last week. This could open up the door to additional downside for crude oil with a new bearish trend seemingly starting to emerge as evidenced by the notable series of lower highs since late August.

CRUDE OIL PRICE CHART WITH VIX INDEX OVERLAID: DAILY TIME FRAME (OCTOBER 2015 TO OCTOBER 2020)

Crude Oil Price Chart Technical Forecast

Chart created by @RichDvorakFX with TradingView

On that note, if oil prices breach the 08 September intraday low, crude could crumble further and potentially target June lows near the $34.35-mark. Another driver that stands to weigh negatively on the direction of crude oil prices includes rising market volatility. The S&P 500 VIX Index, or fear-gauge, broadly maintains an inverse relationship with sentiment-linked assets like crude oil, which is illustrated in the chart above.

This negative correlation between crude oil and the VIX Index is discussed further in our quarterly crude oil forecast available to download for free. Not to mention, the fundamental landscape surrounding global oil supply and demand might cause the commodity to swing wildly as well. Check out our 4Q-2020 fundamental and technical crude oil forecast for comprehensive insight on where oil prices might head going forward.

— Written by Rich Dvorak, Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight