Crude Oil Week Ahead: Are Upside Hedging Risks Fading?

Key Events:

• Oil tests the psychological $70-barrier
• Flash Manufacturing and Services PMIs (UK, EU, and US)
• Crude Oil Week Ahead Technical Analysis: 3-Day Time Frame

Market Overview

With peace talks between Russia and Ukraine emerging in headlines, crude oil continues to fluctuate amid rising supply and declining tariff risks. The extended negotiation period has eased concerns over immediate trade disruptions, keeping oil aligned with its bearish momentum – a trend in place since September 2022 highs and extending into 2025. However, uncertainty remains over Middle Eastern tensions and the Gaza strip.

Bearish Pressures on Oil Prices

The latest US CPI data surged to multi-month highs, reinforcing expectations of a prolonged tight monetary policy. Meanwhile, crude oil inventories rose to one-year highs at 8.7M barrels, and dropped to another elevated supply level at 4.1M barrels last week, aligning with October 2024 highs – a key factor adding to bearish sentiment. The short-lived upside momentum from hedging risks appears to be fading as negotiations progress and tariff risks are postponed.

Key Events to Watch

FOMC Member Policy Outlooks: The stance on economic policies in light of elevated inflation could influence oil demand potential.

Trump Policy Announcements: Potential policies affecting the energy sector – especially under the ‘Drill, Baby, Drill’ agenda – may trigger short lived price spikes, as increased supply risks remain core focus.

Flash PMIs on Friday: Flash Manufacturing and Services PMI data across the Eurozone, UK, and US could impact oil demand expectations and price volatility.

Technical Analysis: Quantifying Uncertainties

Crude Oil: 3-Day Time Frame – Log Scale

Source: Tradingview

The latest price action on crude oil reflects dominance for bearish sentiment, with a large bodied bearish candle engulfing the week’s gains. Prices have dropped below the critical 72 level once again, touching the $70.07 low. Crude oil is now facing the trendline connecting consecutive lower highs from November 2024 to December 2024, within the 70-69.50 range.

A firm break below this zone could further reinforce the bearish trend, aligning crude oil with its longer-term downtrend towards the key 4-year support zone between $66 and $64. A confirmed breakdown below this level could open the door for new 4-year lows in 2025, eyeing $60, $55, and, in extreme cases, $49.

Upside potential: given that crude oil is trading near a critical support zone, a potential rebound could lead to resistance levels at $73.50, $75, and $78. A decisive close above $78, breaking the two-year downtrend, could signal a bullish reversal, paving the way for rallies toward $82, $86, and $90.

Written by Razan Hilal, CMT

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