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I do believe that the longer-term outlook for crude oil is probably going to be very dependent on GDP figures, and central-bank policy.
- The West Texas Intermediate Crude Oil market rallied again on Monday, to break above the 200-Day EMA.
- This is a bullish sign, and at the end of the day we are hanging around the 50-Day EMA as well, perhaps trying to keep the market from forming the so-called “death cross.”
- There are a lot of different things going on in the crude oil market that you need to be aware of, and therefore it’s not exactly the easiest market right now to be involved in.
For example, we are near 2 of the biggest moving averages, but we also have a rising wedge that measures for a move to about $100 or so. In other words, the bullish pressure may be somewhat limited based on a little bit of chart reading. However, charts do not move markets, it’s the other way around.
The Iranians possibly being able to throw another 1 million barrels of crude oil into the market certainly could be negative. However, OPEC is also starting to talk about production cuts, because they believe that the “paper price” of crude oil does not represent the actual physical issues in the real world. That’s probably true because all one must do is look at the silver market to understand that being a possibility.
Recession and Monetary Tightening Likely to Bring Down Prices
Nonetheless, I believe that the upside move is probably somewhat limited in the short term because we must worry about the fact that economies around the world are slowing down, and that means that demand for crude oil will continue to fall. That doesn’t necessarily mean we need to break down significantly, just that it may put a bit of a drag on price.
In this scenario, I prefer to keep my position size rather small, and I recognize a trading crude oil right now is probably more of a gamble than anything else, but I do believe that the longer-term outlook for crude oil is probably going to be very dependent on GDP figures, and central-bank policy. As central bankers continue to tighten monetary policy, that should in theory bring down demand for crude oil as economies enter recessions. Because of this, I think it’s probably only a matter of time before we see an exhaustion candle that we can start to think about shorting.
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