Is The Bottom In For Oil

Oil Rises To One-Month High

Oil prices have been on the rise in recent trading sessions and it looks like a bottom may be in. The price for the June contract, which expires in one day, shot up more than 9% in early Monday trading as processors and refiners bet on increasing demand and slackening supply. Two factors are driving prices that add up to one thing, tighter supply. The low, low price environment and pandemically-reduced demand have producers cutting back on output while at the same time slowly reopening economies promise a fundamental increase in usage.

What this means for traders is that price action is likely to keep rising in the near-term. With WTI on the move, the next major target for resistance is at the $28.75 level and it may be reached in only a day or tow. The indicators are bullish and suggest increasing strength within the market with one caveat. The stochastic is high in overbought territory where it is set up to reverse. I may be reading too much into the potential of the signal but it always pay to be prepared. The likely scenario is that $28.85 will provide some resistance and may/or may not cap gains from further advance.

Is the bottom in? It certainly look like it but traders should be cautious of overly bullish sentiment. The bottom may be in but that does not mean a sustained reversal in price action is at hand. If WTI can surpass its resistance point then yes, I see further rally ahead. If not, the black gold will likely remain range bound for the foreseeable future. The pandemic is easing but it’s not over, and even if it is, the economies of the world are fart from fully-functioning.

In the meantime, keep an eye on production levels because they are falling. OPEC began its cut-back on the 1st of March and since then several members including the Saudi’s have voluntarily cut further. In the U.S., output last week was down more than 11% off its recently set high. If production continues to fall oil prices have a better chance of rising, with or without the addition of increasing demand.