The West Texas Intermediate Crude Oil market gapped lower to kick off Wednesday but then turned around to recapture the $100 level. This is a microcosm of the volatility that we are seeing around the world, and I don’t think it gets any better anytime soon. The 50-Day EMA is at the $110 level, and that could be a target, but we would need to get above the previous uptrend line to even have that conversation. At this point, the $110 level looks to be the ceiling.
On the other hand, if we were to break down below the black 200 day EMA on the chart, that opens up the possibility of a significant drop, perhaps down to the $90 level. Breaking below the $90 level opens up the possibility of a significant decline, because it will trip a lot of algorithms to start shorting again. At that point, I think that the $90 level gets blown through, and we go looking at the $80 level for support. After that, and perhaps more likely, we will find buyers closer to the $70 level.
Keep in mind that the market is more likely than not going to pay close attention to production numbers and of course the US dollar. If the US dollar continues to climb, it’s very possible that will weigh upon this market as well. After all, the US dollar is like a wrecking ball for almost everything, crude oil included. At this point, I am very leery about putting too much money into the market, because quite frankly it’s just so messy right now. The OVX, or the oil volatility index, has been all over the place, and you can see why.
Pay close attention to economic and inflation numbers, because if central banks around the world are going to have to tighten monetary policy, that is going to put a significant dent in the overall longer-term demand, because the economy will almost certainly go into a recession. In a recession, demand for crude oil will drop to the floor, so it all plays out in a negative direction. On the other hand, if inflation starts to cool off, then the markets will start to think that the central banks would be less aggressive.
Ready to trade the WTI/USD exchange rate? Here’s a list of some of the best Oil trading platforms to check out.