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Crude oil price forecast: bull flag formation takes shape

The price of oil halts a three-day selloff despite a larger-than-expected rise in US inventories, and crude may continue to hold above the 50-Day SMA ($87.58) as a bull-flag formation appears to be taking shape.

Source: Bloomberg

Recent price action in crude raises the scope for a larger pullback as it extends the series of lower highs and lows from earlier this week, but the recent decision by the Organization of Petroleum Exporting Countries (OPEC) may keep oil prices afloat as the group plans to “adjust downward the overall production by 2 mb/d” starting in November.”

As a result, the price of oil may attempt to retrace the decline from the monthly high ($93.64) as long as it holds above the moving average, and it remains to be seen if OPEC will take additional steps to prop up crude prices as data prints coming out of the US warn of slowing consumption.

Source: DailyFX

Fresh figures from the Energy Information Administration (EIA) show crude inventories climbing 9.88M in the week ending October 7 versus forecasts for a 1.75M rise, and signs of waning demand may push OPEC to further adjust its production a schedule as the most recent Monthly Oil Market Report (MOMR) reveals that “world oil demand growth in 2022 is revised down by 0.5 mb/d.”

Source: OPEC

The MOMR goes onto say that “for 2023, world oil demand growth is also revised down to stand at 2.3 mb/d,” and it remains to be seen if OPEC will continue to curb production at the next Ministerial Meeting on December 4 as rising interest rates across advanced economies dampens the outlook for energy consumption.

Until then, developments coming out of the US may sway oil prices as a deeper look at the EIA report shows a decline in the weekly field production of crude, with the figure narrowing to 11,900K in the week ending October 7 from 12,000K the week prior.

Source: Energy Information Administration (EIA)

In turn, current conditions may prop up oil prices as US output slips to its lowest level since July, and the price of crude may no longer respond to the negative slope in the 50-Day SMA ($87.58) as market participants brace for a shift in OPEC production.

With that said, the recovery from the September low ($76.25) may turn out to be a key reversal in the price of oil as it holds above the January low ($74.27), and crude may attempt to retrace the decline from the monthly high ($93.64) as a bull-flag formation takes shape.

Crude oil price daily chart

Source: TradingView

Summary

  • The price of oil trades to a fresh weekly low ($85.56) as it continues to carve a series of lower highs and lows, and lack of momentum to hold above the 50-Day SMA ($87.58) may push crude towards the $84.20 (78.6% expansion) to $84.60 (78.6% expansion) area, with a break of the monthly low ($80.87) opening up the $78.50 (61.8% expansion) to $79.80 (61.8% expansion) region.
  • However, a bull-flag formation appears to be taking shape as crude manages to hold above the moving average, with a break/close above the 90.60 (100% expansion) to $91.60 (100% expansion) region bringing the monthly high ($93.64) on the radar.
  • A break/close above the Fibonacci overlap around $93.50 (61.8% retracement) to $95.30 (23.6% expansion) may push the price of oil towards the 200-Day SMA ($97.29), with the next region of interest coming in around $100.20 (38.2% expansion).
Source: Bloomberg

This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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