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Crude Oil Prices Break Key Chart Resistance as Vaccine Rally Heats Up

crude-oil-prices-break-key-chart-resistance-as-vaccine-rally-heats-up

CRUDE OIL PRICE OUTLOOK:

  • Crude oil prices seem to be gaining upward momentum, propelled by positive vaccine news
  • A formal presidential transition kicked off in the White House, brightening growth prospects
  • WTI has likely broken a key chart resistance, opening door for further upside potential

WTI crude oil prices registered a two-day gain of 6.8% as investors cheered a string of positive vaccine developments that brightened the prospects for economic normalization. “Risk-on” sentiment is prevailing, with the Dow Jones Industrial Average (DJIA) piercing the 30,000 mark for the first time. Energy(+5.12%) was the best performing S&P 500 sector overnight, thanks to higher oil prices.

President-elect Joe Biden has started a formal transition this week, removing post-election uncertainties and paving the way for significant shifts in US foreign policy. He said America was “back, ready to lead the world” in a speech on Tuesday, marking a sharp reversal of President Trump’s “America first” policy. He has nominated former Fed Chair Janet Yellen as his new Treasury Secretary, who may work with Jerome Powell in unleashing US fiscal and monetary stimulus to foster a swifter recovery.

Investors are perhaps looking beyond current headwinds in anticipation of a faster pace of removal of social distancing and lockdown measures with the help of Covid-19 vaccines. On the flipside however, markets appear to be overheated with a sense of complacency, flagging risks for a short-term pullback should profit-taking activities ramp up.

Meanwhile, oil traders are also waiting for a decision from the OPEC+ coalition to delay by 3-6 months a planned production hike scheduled in January 2021, in an effort to cushion the pandemic’s impact. This is another key driver behind oil’s rally in recent weeks.

On the macro front, Markit US manufacturing PMI registered its fastest pace of expansion in 74 months (chart below). A stronger-than-expected recovery in manufacturing activity underpinned the resilience of the underlying economy amid another viral wave. Today’s release of US durable goods orders, core PCE inflation, initial jobless claims and EIA crude oil inventories data will be closely eyed too. Read more on DailyFX economic calendar.

Source: DailyFX, Bloomberg

Markets foresee a 0.127-million-barrelincrease in US crude inventories for the week ending November 20ths, following a 0.769-million-barrel rise in the week before. The America Petroleum Institution (API), a major private-sector energy agency, reported a 3.8 million-barrels build in crude stockpiles, which may threaten the rally in oil prices. The historic negative correlation between crude oil prices and EIA DOE inventory changes can be viewed in the chart below.

Source: Bloomberg, DailyFX

Technically, WTI has decisively broken a key resistance level of US$ 43.80 with strong upward momentum. Overcoming this resistance may point to further upside potential in the medium term. The RSI indicator, however, has pierced an overbought threshold of 70.0, flagging risk for a short-term pullback. Prices have reached the upper Bollinger Band, which is commonly viewed as a dynamic resistance level. A pullback from here may lead to a re-test of US$ 43.80 – an immediate support level.

WTI Crude Oil PriceDaily Chart

— Written by Margaret Yang, Strategist for DailyFX.com

To contact Margaret, use the Comments section below or @margaretyjy on Twitter

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