Crude Oil Main Trend Changed to Up, but Needs to Hold Above $41.50 to Sustain Upside Momentum

U.S. West Texas Intermediate crude oil futures closed higher on Tuesday on the hope U.S. policymakers were nearing a deal on coronavirus relief, but the threat to demand from rising COVID-19 cases worldwide and increased Libyan output kept prices from moving higher.

On Tuesday, December WTI crude oil futures settled at $41.70, up $0.64 or +1.56%.

Adding to supply worries, crude inventories rose by 584,000 barrels in the week to October 16 to about 490.6 million barrels, data from industry group the American Petroleum Institute (API) showed, compared with analysts’ expectations in a Reuters poll for a draw of 1 million barrels.

“If we get a deal, I think that would be supportive, and if we don’t get a deal, I think that’s going to be somewhat punishing for prices,” said John Kilduff, partner at Again Capital in New York.

Daily Swing Chart Technical Analysis
The main trend is up according to the daily swing chart. The main trend changed to up on Tuesday when buyers took out the last swing top at $41.74. A trade through $39.36 will change the main trend to down.

The short-term range is $44.33 to $36.93. The market closed on the strong side of its retracement zone at $41.50 to $40.63. This is helping to generate some upside momentum. This retracement area is controlling the near-term direction of the market.

Short-Term Outlook
The early price action suggests that the direction of the December WTI crude oil futures contract on Wednesday is likely to be determined by trader reaction to the short-term Fibonacci level at $41.50.

Bullish Scenario
A sustained move over $41.50 will indicate the presence of buyers. A sustained move over $41.74 will indicate the buying is getting stronger. This could lead to a test of the main top at $42.02.

A trade through $42.02 will reaffirm the uptrend. This is also a potential trigger point for an acceleration to the upside with the next target the August 26 main top at $44.33.

Bearish Scenario
A sustained move under $41.50 will signal the presence of sellers. If this generates enough downside momentum then look for the selling to possibly extend into the 50% level at $40.63, followed by the minor bottom at $40.46.

Taking out $40.46 will shift momentum to the downside with the main bottom at $39.36 the next likely downside target.

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