OIL : Sell Signal

(Tue, 2 Mar 2021). The price of oil extends the series of lower highs and lows from the February high ($63.81) ahead of the Organization of the Petroleum Exporting Countries (OPEC) Joint Ministerial Monitoring Committee (JMMC) meeting on March 3, with recent developments in the Relative Strength Index (RSI) indicating a further decline in crude prices as the oscillator falls back from overbought territory and slips below 70.

OIL PRICE OUTLOOK MIRED BY RSI SELL SIGNAL AHEAD OF OPEC JMMC MEETING

The price of oil appears to have reversed course ahead of the 2020 high ($65.65) as it trades back within the confines of the ascending channel established in November, but more of the same from OPEC+ may keep crude prices afloat as Saudi Arabia stays on track to reduce supply by 1 million b/d until April.

It remains to be seen if OPEC and its allies will switch gears later this year as the most recent Monthly Oil Market Report (MOMR) insists that “positive developments on the economic front, supported by massive stimulus programmes, are expected to encourage demand in various sectors in 2H21,” but a textbook RSI sell signal has emerged ahead of the JMMC meeting as the oscillator falls back from overbought territory and slips below 70.

In turn, the recent series of lower highs and lows may push the price of oil towards channel support as the bullish momentum abates, but the pullback from the February high ($63.81) may turn out to be an exhaustion in the broader trend rather than a change in behavior as US production currently sits at its lowest level since 2017.

With that said, the bearish price action in crude may persist as long as the RSI tracks the downward trend established last month, and the price of oil may fall back towards channel support following the failed attempt to test the 2020 high ($65.65).

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