A recent trade idea suggested taking a short position on crude oil futures based on several technical indicators. Light Crude Oil Futures were priced around $69.84 and displayed a bear flag pattern after touching a previously broken upward channel, indicating potential resistance. Volume Profile analysis indicated that the price was testing the Value Area Low, which added to the resistance. The significant psychological level of $70 often serves as a partial profit-taking point, further establishing resistance. Historical patterns also hint at price pullbacks following recent surges of nearly 9%, suggesting a likely downturn ahead.

Sentiment Influences

The sentiment from NASDAQ and S&P futures, driven by earnings from Meta and Microsoft, had an impact on crude prices. However, such sentiment increases are usually short-lived. The trading strategy recommended a stop-loss and take-profit set at 1.5%, which was later adjusted to 1%. Half of the position was closed at $69.64 to secure a risk-free trade. China’s slowing economy, highlighted by a PMI drop to 49.3, suggests reduced oil demand since China is the largest oil consumer. Even though GDP grew in Q2, weaknesses are becoming clearer, especially with the shift towards electric vehicles. Additionally, increased oil output from non-OPEC+ countries may lead to oversupply. Geopolitical factors can also unexpectedly affect oil prices. The current sentiment appears bearish due to higher oil production than demand; however, this situation can change quickly. Traders should keep an eye on China’s economic data, OPEC+’s strategies, and geopolitical developments for better-informed decisions. As of July 31, 2025, crude oil is struggling around the crucial $70 per barrel mark. The recent rally seems to be losing strength, creating a potential opportunity for bearish positions in the weeks ahead. Traders should be cautious not to get swayed by lingering bullish sentiment from the broader stock market.

Market Analysis

From a technical viewpoint, the oil price is hitting a resistance level that was previously a support level. This retest of a broken upward channel on the 4-hour chart indicates that sellers are entering at this resistance spot. Additionally, we are monitoring trading activity around the $70 mark, which adds to this resistance. The most significant challenge for oil prices is the economic slowdown in China. The official manufacturing PMI for July came in at 49.3, indicating contraction in factory activity. This is further supported by recent import data that showed a decrease to 10.8 million barrels per day, which is significantly lower than last year’s peaks, raising concerns about future demand. On the supply side, there is an ample amount of oil available in the market. The latest EIA report shows U.S. production reaching a record 13.5 million barrels per day, and OPEC+ has been steadily increasing output. The upcoming OPEC+ meeting in early August will be crucial to see if they adjust their production plans in response to China’s economic weakness. Reviewing the price action over the past year, we have frequently seen sharp rallies of 5% or more quickly fade away. The recent 9% rise seems excessive, especially since it was fueled by excitement from tech earnings rather than solid oil fundamentals. A pullback appears likely based on these historical trends. For traders in derivatives, this environment may favor strategies that profit from price drops or sideways movement. This could involve buying put options for a possible move down to the mid-$60s with defined risk. More cautious traders might consider selling out-of-the-money call credit spreads above the current resistance levels near $71-$72. Nonetheless, it is crucial to remain alert for sudden market changes. Geopolitical tensions in the Middle East or surprises from the upcoming OPEC+ meeting could easily send prices upward against the current trend. Managing risk with tight stop-losses on any short positions is essential. Create your live VT Markets account and start trading now.

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