Crude oil price
Crude oil price appeared to have broken higher the other day. On lower timeframes, it did. But the bigger timeframes still show the price action struggling to gain traction, offering traders a good risk-reward ratio for a short trade.
Yesterday’s move higher triggered a similar reaction to other oil markets. Brent completely filled the March gap caused by the Saudi Arabia and Russia fighting over prices and production cuts.
But the crude oil price mainly depends on supply and demand imbalances. More precisely, economic growth strongly affects the price of oil, besides production or storage capacities. Also, new discoveries play a crucial role too.
This week something interesting hit the markets. First, the market found out that the Saudi-Iraqi oil flows into the United States reached ten years low. If the trend continues, in August we may see the lowest U.S. imports of crude oil from Saudi Arabia in at least thirty years.
It means that America is oil independent and can grow without importing it. Or, it means that economic growth does not pick up as fast as many believe. In both cases, this is bearish news for the crude oil price.
Second, global economic activity seems to slow down, as suggested by Google searches for air travel, taxi services, or hotel accommodation.
If we couple the fundamentals with the technical picture, it makes sense to try a short trade giving the circumstances. Three bearish clues appear on the chart below.
First, the price hit resistance on an area previously acting as support. Second, the current consolidation resembles a rising wedge – a bearish pattern. Third, a bearish divergence with the RSI exists.
To trade it, wait for a move below $39. Next, go short with a stop above the high in the rising wedge. Finally, set the target below $30, for a nice risk-reward ratio.
