- Crude oil attempted a brief rally but quickly failed, reinforcing ongoing selling pressure.
- Technical levels near $60 continue to cap price action, while oversupply and weak demand keep the market biased lower unless an external shock emerges.
The light sweet crude oil market initially tried to rally a little bit during the trading session on Tuesday, but then broke down as we continued to see plenty of selling pressure. I think ultimately, we've got a situation here where the market continues to see a bit of an overhang, and therefore, short-term rallies I look at with a lot of suspicion.
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From a technical analysis perspective, the downtrend line and the 50-day EMA both coincide with the $60 level opens up the possibility of a bit of a ceiling. After all, that's what we've seen since the initial surge higher as Russian sanctions were announced. But let's be honest here, Russian oil is still going to make it to the European Union. It has this entire time. That won't change.
Supply Glut and Demand Concerns
Overall, when I look at the oil market, one of the things that I pay the most attention to is the fact that the United States, Russia, and OPEC are all flooding the market with supply, and we have a situation where the demand just isn't going to keep up at the moment. With that being the case, I do think that eventually we will break even lower, but the $55 level underneath, I think, is the floor in the market. After all, oil does tend to be very choppy and does tend to be range-bound overall, but occasionally we'll get a big move.
Right now, I just don't see that big move without some type of external factor coming into the picture. And right now, I think we've just got a situation where you have to look at this through the prism of a market that you're just trading short term, but with more of a negative bias, at least until we break above $62, something that doesn't look very likely to happen anytime soon.
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