Despite the OPEC+ production cuts, the oil market has not experienced a significant rally. However, these cuts have played a crucial role in stabilizing oil prices around the $70 level, which is commendable. Nevertheless, the market still faces the looming risk of a global recession and reduced demand, which continues to create a downward bias. In the short term, there is a possibility of higher prices due to increased economic stimulus in China, as it tries to avert deflation. However, it is unlikely that minor adjustments like the 10 bps cuts observed in the previous month will be sufficient to trigger a substantial price rally.
Analyzing the daily chart, we observe that Crude Oil has experienced a rally from its support level at $67.00 to reach the resistance level at $75.00. Notably, this is the same price point where Saudi Arabia surprised the market with a voluntary production cut, and other OPEC+ members extended the cuts until 2024. The outcome at this critical level will have significant implications for the future of the oil market. A breakthrough above this resistance level could potentially pave the way for a rally towards the next resistance level at $83.00.
Examining the 4-hour chart, it becomes evident that Crude Oil has been following an ascending channel leading up to the $75.00 level. Notably, the moving averages have intersected in an upward direction and are currently serving as dynamic support for the price action. It is anticipated that sellers may emerge at this juncture, with a well-defined risk positioned above this level, targeting a retest of the $67.00 support. Conversely, buyers will likely wait for a confirmed breakout above the $75.00 level before increasing their positions significantly and potentially triggering a rally towards the previous high at $83.00.
Analyzing the 1-hour chart, we observe that the recent upward move in Crude Oil is exhibiting divergence with the MACD indicator, occurring precisely at the $75.00 resistance level and the upper boundary of the channel. This divergence typically indicates a loss of momentum, often preceding pullbacks or reversals. Consequently, a pullback towards the previous swing low level is anticipated, which coincides with the 50% Fibonacci retracement level and the lower boundary of the channel, providing a confluence of support. This level presents an attractive opportunity for buyers to enter with a well-defined risk below it, aiming for a breakout above the resistance.
However, it is important to note that if the price breaks below the lower boundary of the channel, the bullish setup would be invalidated, indicating that sellers have gained control.
Regarding upcoming events, the key event for today is the release of the US CPI report. If the data surpasses expectations, particularly in terms of the core numbers, we are likely to see a risk-off sentiment in the markets, leading to a decline in Crude Oil prices. Conversely, if the data misses the forecasts, it should create a positive mood in the markets, providing support for Crude Oil. Following the US CPI release, other notable events include the US Jobless Claims on Thursday and the University of Michigan Consumer Sentiment on Friday.