OIL : Resistance

(Fri, 11 Feb 2021). The price of oil climbs to a fresh monthly high ($58.91) as US crude inventories contract for the third consecutive week, and the overbought reading in the Relative Strength Index (RSI) may continue to coincide with higher oil prices like the behavior seen earlier this year.

OIL PRICE EYES CHANNEL RESISTANCE AS INVENTORIES FALL FOR THIRD WEEK

The price of oil approaches the upper bound of the ascending channel established in November as it rallies for eight consecutive days, and crude prices may continue to retrace the decline 2020 high ($65.65) amid signs of stronger consumption. Fresh figures from the Energy Information Administration (EIA) showed US crude inventories falling 6.644M in the week ending February 5 versus forecasts for a 0.985M rise, and narrowing stockpiles may keep oil prices afloat as Saudi Arabia remains on track to reduce supply by 1 million b/d until April.

However, the update also showed crude output increasing for the first time since November, with US production climbing to 11,000K from 10,900K in the week ending January 29. It remains to be seen if US output will recover from the COVID-19 pandemic as production still sits around its lowest level since 2018, but it seems as though the Organization of the Petroleum Exporting Countries (OPEC)will continue to regulate the energy market in 2021 as the group pledges to be “vigilant and flexible given the uncertain market conditions.”

In turn, the price of oil may continue to trade above pre-pandemic levels ahead of the next Joint Ministerial Monitoring Committee (JMMC) meeting on March 3, and technical outlook remains constructive as the price of oil continues to track the upward trending channel carried over from November.

With that said, the price of oil may test the upper bound of the ascending channel as it extends the series of higher highs and lows from the start of the month, while the overbought reading in the Relative Strength Index (RSI) may continue to coincide with higher oil prices like the behavior seen earlier this year.

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