Crude oil received some support from Powell’s softer approach but couldn’t break important resistance levels, leading to a loss of earlier gains. The market is now focused on the upcoming NFP report, which could influence expectations for interest rates and the Federal Reserve’s direction. Strong NFP data could bring short-term pressure as hawkish changes might lower growth forecasts. On the other hand, a dovish Fed could drive crude oil prices higher, potentially reaching the $70.00 mark due to expected increased demand. Weak data might initially slow down the market but could later support it as expectations for a more dovish approach grow.

The Daily Chart Overview

On the daily chart, crude oil briefly went above the $64.00 resistance zone but then fell back, following a major downward trendline. Sellers may aim for a drop to $59.77, while buyers hope to break the trendline and reach $70.00. The 4-hour chart offers limited insights, so we need to closely examine the 1-hour chart. The 1-hour chart shows a slight downward trend, hinting at a bearish movement. Sellers may continue to push prices down, while buyers are looking for a breakout rally. Upcoming events like US Jobless Claims and the US PCE price index could influence the market. Crude oil is currently struggling to rise, even with signs that the Federal Reserve might adopt a softer policy. The price couldn’t break the key $64 resistance level and has fallen back. The focus is now on upcoming US jobs data to provide clearer guidance on interest rates. Last week’s Energy Information Administration (EIA) report added to this cautious feeling, showing a surprising inventory increase of 1.5 million barrels when a decline was expected. This indicates that demand might not be as strong as anticipated, giving sellers more confidence around current price levels. This fundamental pressure explains why the breakout above the major downward trendline didn’t hold.

The Weeks Ahead

In the coming weeks, we should keep a close eye on the Non-Farm Payrolls report as it will be a significant factor. A strong jobs number could show a healthier economy but may also delay any potential rate cuts, likely pushing oil prices down toward the $59.77 support level. In this case, buying short-dated put options or starting bear put spreads would be a smart way to prepare for this downside. Conversely, a weak jobs report could lead to an initial sell-off due to recession concerns, but we would see this as a potential buying opportunity. We saw a similar scenario in late 2023, when poor economic data led to a dovish shift from the Fed that ultimately boosted asset prices. Thus, a dip from weak data could be a chance to buy call options targeting a future move toward the $70 mark. Given the uncertainty before the data release, we expect the implied volatility on oil options to increase, making them more expensive. To manage costs, using vertical spreads can be an effective strategy to express our views. This approach allows us to define our risk and target specific price movements without paying the high premiums of direct long calls or puts. Create your live VT Markets account and start trading now.

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