Volatility alert for oil traders after rebound

Oil markets are holding steady after a significant three-day recovery, as traders keep a close eye on developments in the Middle East and the rally in global equities. Following a volatile week, Brent crude is hovering near $79 per barrel, while West Texas Intermediate (WTI) has climbed above $76, buoyed by positive signals from the US labor market that have also lifted stocks.

Crude charts

After a strong rally in July, crude oil prices have pulled back in recent sessions, with WTI hovering around the $76 mark as of August 8, 2024. This pullback comes amid renewed concerns about global economic growth and a potential slowdown in demand.

Key Technical Levels:

• Resistance: Immediate resistance is closer to $78. A break above this level could signal a resumption of the uptrend.
• Support: On the downside, the $74 level provides crucial support, coinciding with the 200-day moving average. A breach of this zone could trigger further selling pressure.

Indicators:

• Moving Averages: The 50-day MA is currently sloping upwards, suggesting a medium-term bullish trend. However, the recent pullback has brought the price closer to the 200-day MA, which could act as a support level.
• RSI: The Relative Strength Index (RSI) is currently around 50, indicating a neutral market sentiment.
• MACD: The Moving Average Convergence Divergence (MACD) is showing a bearish crossover, suggesting a potential loss of momentum.

Outlook:

The near-term outlook for crude oil remains uncertain. Bulls will be looking for a rebound from the $74 support level, while bears will be aiming for a break below this key zone. The upcoming economic data releases, particularly those related to China and the US, could provide further direction for the market.

Trading Strategies:

• Bullish Scenario: Traders looking for a long position could consider buying on dips towards the $74 support level, with a stop-loss below the 200-day MA.
• Bearish Scenario: A break below $74 could trigger further downside, with potential targets at $72 and $70. Traders could consider short positions with a stop-loss above the 50-day MA.

Geopolitical influences

The geopolitical landscape remains tense, with the US, Qatar, and Egypt pushing for renewed ceasefire talks in Gaza, while the region braces for a potential Iranian strike on Israel. These uncertainties are contributing to the recent oil price movements, adding another layer of complexity for traders.

Oil’s rebound comes after Brent plunged to a seven-month low on Monday, tracking a steep decline in global equity markets. However, the market has shown resilience, with futures poised to break a four-week losing streak. Several factors have contributed to this bullish sentiment, including the shutdown of Libya’s largest oil field, continued draws from US crude stockpiles for the sixth consecutive week, and Ukraine's ongoing military actions within Russia.

“Brent hit the bottom of its long-standing range between $75 and $90 per barrel earlier this week. The stabilization has been supported by geopolitical tensions, sustained drops in US crude inventories, and technical indicators showing the market was oversold,” explained Ole Hansen, head of commodities strategy at Saxo Bank.

On the demand side, China’s jet fuel consumption is showing signs of recovery, providing a rare positive signal amidst an otherwise bearish outlook. This comes after recent data revealed that China, the world’s largest crude importer, brought in the fewest barrels in nearly two years in July, adding to the cautious optimism in the market.

Conclusion

Oil markets are in a delicate balance, with geopolitical events and market fundamentals driving recent price movements. For traders, understanding these dynamics is crucial in identifying potential opportunities. While the current recovery offers a chance to capitalize on short-term gains, it's essential to remain cautious. Market conditions can shift rapidly, especially with the ongoing geopolitical uncertainties and fluctuating demand signals. Staying informed, managing risk, and adapting strategies as the situation evolves are key practices for navigating the complex world of oil trading.