Oil prices are losing steam ahead of the US Federal Reserve decision tomorrow. Recession fears have not only sent stocks into a bear market, but capped the surge in oil prices recently.
Opec delegates and industry sources expect the oil demand to drop to 2 million barrels per day in 2023, from 3.36 million in 2022, due to demand destruction by the spiking fuel prices, according to Reuters. From a technical perspective, the crude price may face short-term downside pressure, as shown in the 4-hourly chart, with a bearish divergence forming ahead, though the long-term uptrend is still intact.
Crude Oil West Texas (WTI) - Cash / 4-hourly chart(Click to see the enlarged chart)
The divergence moves between the market price and oscillators (MACD, RSI, and Stochastic) provide a bearish element of a potential corrective pullback in the oil price, or a bearish divergence pattern, where the price is trending up but the oscillators are trending down. This tells us that the upside momentum is fading off and requires a corrective retreat. At the same time, two MAs are converging for a death cross, which is also a sell signal, adding to the probability of a downside price movement.
If the bearish divergence has been successfully established, WTI may firstly retest yesterday’s low at 117.12 (Fib. 61.80%), then 112.62 (Fib. 50.00%). Otherwise, if the price reversed the downtrend and clears the intraday resistance at 120. 50, where the MAs converged, it may continue the uptrend and hit the recent high at 123.94.
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