The WTI benchmark bounced back Monday and was 5% higher ahead of the US session, jumping back above the important 70 USD threshold.
Friday’s COVID crash
Friday’s panic selling caused a 13% decline in oil price as the WTI plummeted 10 USD from 78 USD to 68 USD. Today’s 5% rally has so far erased only a third of that decline.
The World Health Organization has designated the Omicron variant as a ‘variant of concern.’ Still, it has also stressed that there remains substantial uncertainty over the dangers it poses. Moreover, it looks like this virus strain will be even more transmissible than the Delta variant.
However, South African researchers have also said it tended to trigger only mild infection, which could be good news . Usually, when viruses mutate, they become more infectious but less dangerous or lethal.
Therefore, sentiment turned 180 degrees on Monday as investors reassessed the situation, and so far, the dip-buying strategy has proven profitable again.
Additionally, markets remain hopeful that OPEC and its allies (OPEC+) will pause its planned oil output increases in the wake of the new Omicron covid variant-led uncertainty .
Later in the day, pending home sales for October are forecast to improve slightly, while the Dallas Fed Manufacturing Business Index will also be published. Currently, there is no consensus for the index.
Additionally, Federal Reserve Chair Jerome Powell is due to deliver opening remarks at a webinar hosted by the Federal Reserve Bank of New York . His comments will likely sound dovish, considering the recent sell-off in US stocks. He is expected to try and calm down the markets today, although the tightening of monetary policy should remain unimpacted.
Daily chart looks neutral right now
Oil plunged below the psychological level of 70 USD, where the 200-day moving average is also located. However, today’s rally has brought the price above 71 USD, changing the short-term outlook to bullish as long as the 70 USD is held.
Nevertheless, the technical damage has been done, and many stop losses were destroyed in Friday’s crash. The daily and small time frame charts now look severely oversold, possibly leading to another rally.
The next target for bulls will likely be in the 74 – 75 USD area , where previous highs and lows are converged. However, oil needs to climb above 80 USD for the medium-term uptrend to become active again.
Alternatively, the critical support is seen at 70 USD, and if oil breaks below it again, we could see another leg lower, targeting August lows at 62.50 USD.
Oil daily chart, Source: Author´s analysis, tradingview.com
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