technical analysis USOIL

Technical analysis of USOIL

American light oil has generally held its strength recently as disruption to production in the Gulf of Mexico is likely to have a significant impact on supply. Meanwhile the outlook for demand has ameliorated somewhat over the past fortnight as Chinese industrial data have generally shown improvement. Today’s technical analysis of USOIL takes a look at the four-hour chart (H4) and compares upcoming and annual futures on the commodity.

The most important resistance here is the latest high around $43.80. We can also point to the previous swing high of $43.60 as a zone of importance closer to the price. Low support on this chart is the low at the start of August around $40.45; the psychological area of $40 could also be key if there’s a fairly deep retracement from the current area relative to recent movements.

Technical indicators on USOIL H4


Moving averages continue to give a strong buy signal, with each of the 50, 100 and 200 SMAs successively above slower lines and below the price. The focus of support in the short term is the 100 SMA but a sudden drop below this could be capped by the 200 SMA as well.

There’s currently no sign of overbought from either Bollinger Bands (50, 0, 2) or the slow stochastic (15, 5, 5). The latter at about 46 is very close to neutral. Volume has decreased somewhat so far this week but buying still clearly dominates selling.

Price action and Fibonacci


Price action over the last few weeks has generally been consistent with the impression that there’s fairly little demand to push beyond recently achieved highs. We can observe that the attempts on $43.50 and higher since last week have been met with either a sequence of dojis and near-dojis or a very quick reaction to the downside. In this case then price action forms the basis of identifying resistance; a change in the tone of fundamentals and a retracement from $43.60 or $43.80 over the next few days could signal a bout of losses.

The daily Fibonacci fan here has surpassed price with two of its areas, the 38.2% and the 50%. The 61.8% zone meanwhile remains fairly far below price on the four-hour chart so this could be an important support into next week in the event of a decline from the current area. To the upside, any breakout from $43.60 would probably be capped in the short term at least by the 50% Fibo.

Futures on American light oil


technical analysis USOIL

Here the chart of futures on American light oil (NYMEX, continuous with current contract at front) displays basically a similar overall picture to the spot CFD. The primary difference is that selling volume has actually been much higher than buying so far this week; the opposite is true for the CFD. This doesn’t necessarily mean that a reversal is coming, but it does suggest that new buyers in the medium to long term from here need to be cautious and maybe wait for a retracement instead of entering now.

Annual futures on USOIL


The contango of annual futures (data also from the NYMEX) displays a ‘normal’ situation. The difference over 11 months is now positive 6% approximately, suggesting that the information currently available to participants has been priced in and ongoing small gains are expected over the next few months.

Technical analysis of USOIL: summary


The technical picture for American light oil remains positive and more gains might be expected over the next few weeks. However, given the recent narrow range relative to the usual for crude oil, buying into strength is probably unwise except for traders focussing on the very short term. Instead, it might be advisable to wait for a retracement towards one of the slower moving averages. This might be catalysed by surprising weak data from the API or EIA.

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