Crude oil futures have increased, with prices now at $66.03, up by $0.78 or 1.20%. Sellers couldn’t push prices below the 100-day moving average over the last two days, allowing buyers to take charge and drive prices higher. The 100-day moving average is crucial for future price trends. If prices drop below this average, the next target area is between $64.03 and $64.70.

Critical Short Term Pivot

If this area holds, traders will look at resistance levels at $66.96, followed by the 200-day moving average at $68.01. This bounce is a key short-term pivot for the market, showing that sellers are uncertain at these levels. This technical strength is supported by the recent Energy Information Administration report, which revealed a surprise drop in U.S. crude inventories by 2.5 million barrels, indicating tighter domestic supply. We are preparing for a possible retest of higher price levels. If the price stays above this key technical level, we suggest derivative traders think about buying near-term call options or setting up bull call spreads. The first target for these bullish moves would be the swing resistance at $66.96. A strong break above this could lead to the tougher barrier at $68.01.

Broader Macroeconomic Pressures

However, we need to stay flexible due to broader macroeconomic pressures. Recent manufacturing PMI data from China came in lower than expected, raising concerns about demand. If the market reverses and drops below the moving average, we would quickly shift to a bearish strategy. This would mean buying put options that target the support area between $64.03 and $64.70. Historical patterns suggest that these technical tests rarely lead to extended holding periods. A similar bounce off the moving average in late 2023 resulted in a 7% rally over the following three weeks, before momentum slowed. This indicates that traders should be ready for a quick move instead of a slow one, making long volatility strategies like straddles appealing. We are also aware that OPEC+ has agreed to continue production cuts, providing short-term price support. Should geopolitical tensions escalate in the Middle East, upward pressure on prices could increase, making aggressive bearish bets risky. This situation creates a supportive floor that could challenge sellers in the coming weeks. Create your live VT Markets account and start trading now.

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