Skip to content

CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please ensure that you fully understand the risks involved. CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please ensure that you fully understand the risks involved.

Are we seeing a top for crude oil?

With crude prices turning lower this morning, is there reason to believe we are seeing tentative signs of the long term downtrend coming back into play?

Oil barrels
Source: Bloomberg

Crude prices have been on the rise over the past fortnight, as fears over rising US output were overshadowed by the continued respect of planned production cuts throughout much of the OPEC/non-OPEC nations. However, from a technical point of view, there is reason to believe we could be seeing the market falter in its ascent, paving the way for a period of weakness.

Taking a look at the longer term picture, it is clear that the rally we have been seeing over the past 14 months looks like a retracement of the $62.56-27.58 descent. With that in mind, it is interesting to see the 76.4% being respected over recent months. This weekly chart highlights the rising wedge pattern being formed over the past year. This is typically bearish, thus pointing towards the eventual breakout coming to the downside. Crucially, while we have been creating higher highs over the past year, we have seen the price move into the region of trendline resistance.

WTI weekly chart

The four-hour chart is crucial here, with the price having broken through trendline support last week. That acted as a precursor to the move we are seeing this morning, where the price has dropped below the $53.00 support level. That completes a short term head and shoulders formation, pointing towards further downside to come. With that in mind, there is a good chance we will see crude prices tumble in the coming days.

The key thing to note here is that if this is really a top for WTI, then the fact that it is happening at a lower high (on weekly timeframe) could be a hugely significant thing. With the wider weekly wedge pointing towards an eventual fall out of this pattern, a failure to create a new high means we could be seeing that eventual move come to fruition. Obviously this is somewhat a leap into the dark given what early stages we are at right now. However, the long term picture has to come back into play soon and there is reason to believe that the weakness we expect to see over the coming days could have an impact on the wider picture.

WTI four-hour chart

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IG Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. 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. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.

Find articles by writer