As I have outlined in several previous posts for oil, the longer-term outlook remains weak from both a technical and fundamental perspective, and for the latter, it is the supply-demand equation which continues to dominate prices and hold them at a low level, a driver which is unlikely to change unless OPEC steps in with some draconian measures.
From a technical perspective, it is the volume point of control, denoted by the yellow dashed line, which continues to dominate the price action. That remains firmly anchored in the $40.40 per barrel area. Last week saw a decent rally which saw crude oil reach a high of $41.33 per barrel before selling off again on Friday and return to the VPOC with this morning’s price action picking up this bearish tone.
The volume histogram to the right of the chart presents a formidable barrier with a deep area extending to $42.50 per barrel and so acting as resistance, whilst below support is less well developed only extending to the $39.00 per barrel region. In short, the weight of volume is heavily to the upside and for any recovery to be meaningful this will require a huge effort in terms of the daily volumes driven into the price candles for any trend to be sustained.
Finally, note the price based resistance overhead in the $42.30 per ounce area and denoted with the blue dashed line of the accumulation and distribution indicator. The indicator paints these levels thicker according to the number of times it has been tested and held, and for this level, it is 13 times, so is an immensely strong level.
In summary, therefore, expect oil to continue to remain rangebound oscillating between $37 per barrel to the downside and $42.50 to the upside for some time. The good news is that when oil does break away, Wyckoff’s second law applies—the law of cause and effect, we can expect a strong trend.