- December could be a pretty wild month for the crude oil markets, as we are currently waiting to find out whether or not OPEC will cut production.
- It’s a pretty safe bet that they will, but there’s also the prevailing crosswinds of a potential recession.
- In a recessionary environment, crude oil tends to perform very poorly, as demand for energy drops. I think given enough time we’ve probably got a situation where the markets have gotten a bit ahead of themselves to the downside though, so the potential for a rally is still there.
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On the weekly chart, we are sitting just below the 50-Week EMA and the 200-Week EMA, so pay close attention to those indicators, right along with the $80 level. If we can get a close above the $80 level on at least the daily chart, it could kick off a bit of buying in the oil market. After all, oil is very volatile under the best of circumstances, but when you look at the chart, you can see that we have seen a lot of negative pressure over the last couple of months. OPEC won’t allow this to happen for too long, as national budgets for many of those member countries need to see at least $70 a barrel.
Anticipating a Year-End Oil Bounce
Whether or not they can lift the market for a significant amount of time remains to be seen, but I am expecting oil to bounce into the end of the year. The $90 level above is a massive barrier that will be very difficult to overcome, so if we did overtake that level, I think that would capture a lot of attention. In general, oil does tend to be very range-bound over time, so we may be trying to find the bottom of the trading range currently, and that might be what part of the drop has been.
Alternatively, if we were to break down below the $70 level it would be a very negative turn of events, although I don’t necessarily expect to see that happen. If it does, that could foretell a lot of markets finding themselves in trouble, not just this one. It’s also worth noting that most of November has seen a lot of fighting by the bulls near the $77 level, so that’s something to keep an eye on as well.
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