Crude oil futures continued to trade in a narrow range once again yesterday, with the December WTI futures contract closing the oil trading session at $85.45 per barrel on the daily chart, as pressure builds towards a potential breakout. As always, when markets are in a sustained period of sideways consolidation, as we are seeing for crude oil, when the breakout occurs, it is likely to be volatile and violent. The platform of support now being built in the $84 per barrel level, defines the lower level of the current region. If this level is breached then we can expect to see oil prices move far and fast to test the $78 per barrel level in due course.
So the question now, is whether the price of oil is going to break higher or lower, and to answer this question we need to consider both the price action and the trading indicators. Considering the price action first, the resistance level is now clearly defined with the isolated pivot high of 6th of November with the market testing the underside of resistance above in the $87 per barrel area. To the downside we now have two isolated pivot lows in the $84 per barrel level, clearly defining the floor of current support.
Moving to the associated volume, over the last few days on the daily chart we have seen a mixed picture with no demand for much of the week, and only sustained selling on Wednesday. However on the three day chart, selling pressure has been maintained throughout the month and indeed has remained consistent from late October and throughout November, with the three day trend also reflecting this negative sentiment.
The heatmap has moved into a transition phase once again reflecting the current sideways price action. The key for oil, therefore remains the price action. If the oil market breaks below the floor of current congestion, then oil traders will enjoy a fast move to the downside, with the current price levels merely seen as a pause in the next leg of a longer term bearish trend. The US dollar is also adding further downwards pressure, and should the currency of first reserve continue to strengthen as expected, then this will add further to the negative outlook for oil.
By Anna Coulling