11 Feb

Is Oil Heading for a Breakdown?

WRITTEN BY Robert Scott

US crude oil last week

On February 1–8, US crude oil March futures fell 4.6% and closed at $52.72 per barrel—the lowest closing level for active US crude oil futures since January 28. The rise of more than 1% in the US dollar might have dragged oil prices because it impacts oil’s demand. Concerns surrounding trade talks impacted US crude oil’s fall last week.

Is Oil Heading for a Breakdown?

Is oil heading for a breakdown?

On the upside, $54.76 could be an important level for crude oil until February 15. US crude oil’s 20-day and 50-day moving averages of $53.03 and $50.75, respectively, are important support zones. Last week, US crude oil futures closed below their 20-day moving average.  Any breakdown below these levels could add weakness to oil prices and drag oil-weighted stocks like Whiting Petroleum (WLL), Hess (HES), and Carrizo Oil & Gas (CRZO). At 2:04 AM EST on February 11, US crude oil prices were down ~50 cents from the last closing level.

However, the recent fall in oil prices might create a good buying opportunity because oil might be falling due to the wrong concerns. Last week, Brent crude oil futures outperformed US crude oil’s fall by 3.6 percentage points. The falling supply outside the US might help US crude oil to resist falling bullish sentiments in the United States equity market.

Next, we’ll compare US equity indexes’ performance to oil prices. The events discussed in Part 5 might bring an upside potential for oil prices this week. The sentiments across US crude oil prices and the S&P 500 Index (SPY) are often interrelated.

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