Daily Market Recap – USOIL Prices consolidate despite OPEC production increase

Oil prices are experiencing a roller coaster ride in the near term, with the price of WTI consolidating below its $70 resistance reached last week, due to the mixed outlook for the oil market.

On the one hand, oil prices are being supported by OPEC+ production increases of 400,000 barrels per day each month through the end of the year, despite the Biden administration's call last month for a larger production increase, and by improving health conditions in the U.S. and China.

At the same time, oil prices are suffering from a sharper slowdown in the world's two largest economies, according to figures released in early August. Citigroup's economic surprise indexes for the U.S. and the G10 have both fallen to their lowest levels since the pandemic began.

Economic releases and health developments in major economic regions are expected to be the two main drivers of oil prices in the coming weeks.

Positive economic surprises and improving health conditions would obviously be supportive of oil prices and vice versa.

From a technical perspective, the underlying trend in oil prices has turned bearish since this summer as evidenced by the channel in which the price of WTI has been moving since July. Last week's renewed risk appetite allowed the price of oil to return to test a major resistance below which it had fallen in early August at around $69.60 and to approach the upper bound of the descending channel.

Below this resistance and the upper bound of the channel, the risk/reward ratio favors sellers, but a bearish technical signal will be needed to consider a continuation of the underlying downtrend.

The Bollinger Bands will be one of the indicators that can signal the start of a new downtrend. A downward breakout from the 20-period moving average in the daily time frame would be a technical signal for a bearish reversal.

 (Chart Source: Tradingview 02.09.2021)

Conversely, if the Bollinger Bands and the descending channel were to break above the resistance level at around $70, the short- and medium-term outlook would be bullish again and a continuation of the upward trend to the end of July peak at $74 would be expected.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.