FxPro Commentary: Crude Oil Shows Weakness

On Monday, oil prices fell by about 0.75% as Brent crude and WTI both faced strong selling pressures while trying to break through $80 and $84 per barrel respectively.

Interestingly, the news of the Iranian president's death, which would normally increase risk premiums, did not have that effect. Despite strong rallies in metals and other commodities driven by China's stimulus measures, oil prices continued to decline.

FxPro senior analyst Alex Kuptsikevich noted that news regarding the U.S. oil industry indicates relative economic stagnation. According to Baker Hughes' report last Friday, the total number of U.S. oil drilling rigs was 497, compared to 496 and 499 in the previous two weeks. Since last October, fluctuations have remained near the 500 mark.

The official weekly report from the U.S. Energy Information Administration, released last week, also indicated that production has stagnated at 13.1 million barrels per day over the past ten weeks. This has been the average level since mid-September.

In summary, current prices are neutral for the industry, offering neither an incentive to increase production nor causing a decline in output.

Price charts also show a clear equilibrium of forces for over two weeks. Since last December, gold prices have been on an upward trend. Last week, oil prices briefly fell out of this range but found buyers in the latter part of the week, rising from $76.4 to $79.8 in less than three days.

Bulls have not yet clearly regained the lead, as Monday's attempt to break the 200-day moving average faced more selling. This could be a signal that bears still control the market and are now gathering strength for a new downward impulse. This hypothesis can only be confirmed if consolidation below $76.5 occurs. It would also be relatively easy for oil prices to fall back to $75 (the 200-week moving average). However, if prices drop below $70-71, it might trigger significant price volatility, with the first target possibly being $50, and the ultimate target could be $30.

A return above $80 would indicate a bullish recovery, allowing market sentiment to quickly bounce back to $85 within weeks and potentially break $92 by mid-summer.