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Crude Oil Trading in the Same Box


Are we in a consolidation rectangle, or in an accumulation mode?

  • The West Texas Intermediate Crude Oil market fell during the trading session on Friday, as we continue to trade in the same rectangle.
  • Keep in mind this is a market that is still trying to find its footing one direction or in another, but what I think we are looking at more than anything else right now is that traders are concerned about whether or not the global economy is going to be able to strengthen.
  • After all, central banks around the world continue to tighten monetary policy, that of course will have an influence on how economies expand or if they don’t at all.

Fundamentals Factors Affecting Crude Oil Prices

As crude oil is considered to be the “lifeblood” of the global economy, it does make a certain amount of sense that we would see traders look at it through the prism of whether or not we are going to be moving goods and services. At this juncture, there is still a lot of questioning of this, especially as the Federal Reserve continues to be very tight. This suggests that there will be slowing economic activity, and therefore oil will probably fall. Furthermore, inflation continues to rise, and that has potential implications as to what the Federal Reserve will do, as they will try to keep the market from overheating, and therefore tighten monetary policy, thereby hopefully slowing down things. If it slows down things, then it makes a lot of sense that the demand for oil will fall. This also drives down the value of oil, and so on.

When I look at this crude oil chart, it’s obvious that we are in the midst of a rectangle, so the question now is going to be whether or not we are in a consolidation rectangle, or if we are an accumulation mode. The $77.50 level looks to be support, while the $82.50 level looks to be significant resistance. Once we break out of this box, we should have a relatively straightforward trade. In the meantime though, I think we are just going to be looking at a range bound type of system in order to profit in this market. Those who thrive in that environment will probably love this market right now. Ultimately, I don’t think this market has any real direction in the short term.

Crude Oil Chart

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