Oil Price Breaks Out of Bull Flag Formation to Eye Monthly High

Crude Oil Price Talking Points

The price of oil trades back above the 50-Day SMA ($86.68) after defending the monthly low ($80.87), and crude may continue to retrace the decline from the monthly high ($93.48) as it breaks out of a bull-flag formation.

Oil Price Breaks Out of Bull Flag Formation to Eye Monthly High

The price of oil trades to a fresh weekly high ($89.72) despite an a larger-than-expected rise in US inventories, and recent price action raises the scope for higher crude prices as it extends the series of higher highs and lows from earlier this week.

Crude seems to be unfazed by the 2.588M rise in US inventories as it rallies for three consecutive days, and the advance from the September low ($76.25) may turn out to be a key reversal should the price of oil no longer respond to the negative slope in the moving average.

As a result, crude may continue to retrace the decline from earlier this month as the Organization of Petroleum Exporting Countries (OPEC) plans to “adjust downward the overall production by 2 mb/d” starting in November, and it remains to be seen if the group will continue to adjust its output schedule at the next Ministerial Meeting on December 4 as the Monthly Oil Market Report (MOMR) warns of slowing demand.

Until then, expectations for less supply may keep the price of oil afloat as US production remains below pre-pandemic levels, with the figures from the Energy Information Administration (EIA) showing weekly field output printing at 12,000K for the second week.

With that said, recent price action raises the scope for a further advance in crude as it extends the series of higher highs and lows from earlier this week, and the price of oil may continue to retrace the decline from the monthly high ($93.48) as it breaks out of a bull-flag formation.

Crude Oil Price Daily Chart

Source: Trading View

• The price of oil appears to have reversed course after defending the monthly low ($80.87) as it breaks out of a bull-flag formation, with crude trading back above the 50-Day SMA ($86.68) as it carves a series of higher highs and lows.
• Crude may no longer respond to the negative slope in the moving average as it continues to retrace the decline from the monthly high ($93.48), but need a break/close above the 90.60 (100% expansion) to $91.60 (100% expansion) region to bring the Fibonacci overlap around $93.50 (61.8% retracement) to $95.30 (23.6% expansion) on the radar.
• Next area of interest comes in around the 200-Days SMA ($97.70), with a move above the moving average opening up the $100.20 (38.2% expansion) area.

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong