Crude Oil’s Rebound Potential: Navigating Technical Signals and Geopolitical Risks

Crude Oil has been on a downward trend since peaking in early July, largely driven by technical factors that reinforced bearish momentum. A failure swing reversal occurred when the price couldn’t surpass a previous high, followed by a significant drop that confirmed the trend shift. Bearish pressure was further amplified by a double crossover of the 20-period and 50-period Exponential Moving Averages (EMA), signaling continued downside movement.

However, after hitting a low in mid-September, market conditions began to show signs of a potential rebound. The price moved above the 20-period EMA, the Momentum oscillator crossed into positive territory, and the Relative Strength Index (RSI) climbed, indicating a possible shift in sentiment. Despite these positive signals, prices remain below the 50-period EMA, suggesting a mixed outlook that requires careful observation of key resistance and support levels.

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Crude Oil has been on a downward trend since peaking at 84.24 on July 5. The decline was largely due to technical factors that reinforced bearish momentum. A notable failure swing reversal occurred when the high of 83.09 couldn’t exceed the prior peak, followed by a drop below 80.46, confirming the trend shift. Moreover, the 20-period and 50-period Exponential Moving Averages (EMA) formed a double crossover, adding to the selling pressure.

However, after hitting a low of 65.07 on September 10, market conditions began signaling a potential upward correction. The price broke above the 20-period EMA, the Momentum oscillator moved past the 100 line, and the Relative Strength Index (RSI) climbed above 50. Despite these positive signals, prices remain under the 50-period EMA, suggesting a mixed outlook that requires careful observation.

Should the buyers take market control, traders may direct their attention toward the four potential resistance levels below:

72.67: The initial resistance is set at 72.67, which corresponds to the swing high marked on September 24.

75.02: The second price target is established at 75.02, aligning with the weekly resistance R2 estimated using the standard Pivot Points methodology.

76.48: The third price objective is projected at 76.48, corresponding to the 161.8% Fibonacci Extension drawn from the swing high of 72.67 to the swing low of 66.50.

82.65: An additional price target is seen at 82.65, representing the 261.8% Fibonacci Extension drawn from the swing high of 72.67 to the swing low of 66.50.

Should the sellers maintain market control, traders may consider the four potential support levels listed below:

69.54: The initial support level is identified at 69.54, corresponding to the weekly Pivot Point estimated using the standard methodology.

66.50: The second support level is seen at 66.50, representing a daily low from October 1.

65.07: The third support level is positioned at 65.07, reflecting the low point marked on September 10.

60.37: An additional downside target is noted at 60.37, corresponding to the 161.8% Fibonacci Extension drawn from the swing low of 65.07 to the swing high of 72.67.

A recent missile attack in the Middle East has reignited concerns about oil supply disruptions, challenging the bearish sentiment that has dominated the market. Tensions have escalated following threats of retaliation from one side, pushing Brent crude prices above $74 a barrel, after initially surging over 5%. Analysts warn that further conflict could lead to significant price increases, particularly if key oil infrastructure is targeted or critical shipping routes are blocked. This region handles a substantial portion of global oil trade, and any disruption could have far-reaching impacts. The recent bearish outlook on Oil, driven by concerns of oversupply, is now being tested as geopolitical risk premiums reemerge, leaving the market more susceptible to volatile price movements.

In conclusion, while Crude Oil has faced significant downward pressure since early July due to technical factors and bearish momentum, recent signals point to a potential shift. Key technical signals, including the price moving above the 20-period Exponential Moving Average (EMA) and strengthening momentum indicators, indicate the potential for an upward reversal in the near term. However, the outlook remains cautious as prices continue to trade below the 50-period EMA, highlighting the need for careful monitoring of resistance and support levels to confirm a sustained reversal. Ongoing geopolitical risks further complicate the market, adding volatility and uncertainty to oil price movements in the near term.