WTI oil prices are around $59.75, down 0.5% in early European trading. The market is worried about oversupply since OPEC+ has raised its December output target by 137,000 barrels per day, similar to the targets set for October and November. Despite some positive news about US government funding, oil prices have not reacted strongly. After Senate Democrats supported the funding bill, it moved to the Republican-led House. This could increase oil demand if the government reopens.

WTI Trading Patterns

Currently, WTI is in a Descending Triangle pattern, trying to break out of its boundaries. The price is close to the 20-day EMA, which shows it’s stuck in a sideways trend. If it dips below the November 6 low of $58.75, we could see prices fall to October’s high of $57.43. On the other hand, if prices rise above the August 6 high of $66.00, they might climb to July’s peaks around $68.00 and $70.00. The 14-day RSI is between 40.00 and 60.00, indicating lower volatility. WTI oil inventory data from API on Tuesdays and EIA on Wednesdays significantly influences trading. Changes in inventory, whether indicating more supply or demand, reveal broader market trends. For almost two weeks, oil prices have hovered around $60, showing uncertainty in the market. The Descending Triangle formation suggests a potential sharp drop may be on the way. Low volatility, shown by the RSI remaining between 40.00 and 60.00, indicates a larger move might be coming. Recently, concerns over oversupply have intensified, affecting prices. Last week’s EIA report revealed an unexpected inventory increase of 2.1 million barrels, contrary to analyst expectations for a small reduction. This aligns with the December supply increases announced by OPEC+, reinforcing a bearish outlook.

Market Outlook and Strategy

The boost in demand from the US government reopening has not pushed prices up, as rising oil stockpiles are more pressing. A similar technical setup occurred in late 2023, which resulted in a price drop of over 15% in the following weeks. For derivative traders, planning for a breakdown appears to be a better strategy. Buying put options with strike prices at or below $57.00 allows you to profit from a potential price drop while limiting your risk. Alternatively, you can set up a bear put spread to reduce entry costs if implied volatility is high. We’re closely watching the November 6 low of $58.75. If prices break below this level, it could trigger a decline towards October’s high of $57.43 and further down to April’s critical support at $54.80. A move above the resistance at $66.00 would invalidate this bearish outlook. Create your live VT Markets account and start trading now.

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