Oil rallies on strong US macroeconomic data, comments from Saudi Oil Minister

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• An unexpected rise in US PMI data spurs Oil to rally on increased demand hopes. 
• Oil is supported by optimism US lawmakers will reach agreement to raise US debt ceiling. 
• A bullish triangle price pattern forms on the 4-hour chart increasing the evidence the bearish trend may be reversing.  
• API inventory data to be released later on Tuesday could inject some volatility into Crude Oil price action. 

Oil price trades higher on Tuesday continuing its recovery from the poor open at the start of the week, spurred on by strong US macroeconomic data coupled with optimism regarding the outcome of debt-ceiling talks. A recent EIA report highlights increased global demand in the second half of 2023. Oil is supported as Gasoline prices rise over 2.5% ahead of the US Memorial weekend holiday and expectations of increased demand during the summer driving season. Comments from the Saudi Oil Minister on Tuesday, warning speculators to “watch out”, suggests Oil price volatility may be on the horizon. 

At the time of writing, WTI Oil is trading in the lower $73s and Brent Crude Oil in the lower $77s. A bullish right-angled triangle has formed on the 4-hour chart, challenging the overarching bear trend.  

Oil news and market movers 

• Oil rallies as the outlook for US growth improves after S&P Global Composite PMI data rises to 54.5 when a drop to 50.0 had been expected. 
• Crude is supported as United States lawmakers continue negotiations to raise the debt ceiling and avoid a US government default. 
• Republican House Leader Kevin McCarthy expresses optimism after Monday’s talks, saying, “​​I believe we can still get there. I believe we can get it done.” Adding that he thought the talks were the most productive so far. 
• Saudi Oil Minister, Prince Abdulaziz bin Salman, warned Oil speculators to “watch out” and that they might suffer as they did “in April”, ahead of the OPEC+ meeting on June 4.
• Prince Abdulaziz went on to defend OPEC+ and its decision to cut production by 2 million barrels per day (bpd) in October 2022. Given the Oil price is at similar levels now, it may suggest there is a risk of OPEC+ deciding on another cut to raise prices in June. 
• Gasoline prices surged higher on Tuesday in response to increased demand ahead of the US Memorial weekend and the summer driving season, supporting Crude Oil prices.  
• The last EIA report highlighted a demand gap in the second half of 2023 could lead to Oil shortages and higher prices to come. 
• Oil price struggled at the beginning of the week, partly as a result of global trade concerns after major economies clashed at the G7 summit in Japan. 
• China further provoked the US by banning imports of memory chips from US manufacturer Micron, citing security risks.  
• The US Dollar catches a bid on Tuesday as Federal Reserve (Fed) officials continue to talk about the possibility of more rate hikes, providing a headwind for Oil, which is priced in USD.
• API inventory data out at 20:30 GMT will provide an indication of demand and supply dynamics in the crude market and could impact Oil prices if it comes out substantially higher or lower than last week’s 3.69 million barrels figure. 
• A higher result would signal increasing supply and weigh on Oil prices and vice versa for a lower data point. 
• S&P Global PMI data at 13:45 GMT could also impact Oil prices via the US Dollar – if it beats expectations it is likely to support USD and weigh on Oil and vice versa if lower. 

Crude Oil Technical Analysis: Downtrend increasingly compromised

WTI Oil is in a long-term downtrend, making successive lower lows. Given the old adage that the trend is your friend, this favors short positions over long positions. WTI Oil is trading below all the major daily Simple Moving Averages (SMA) and all the weekly SMAs except the 200-week which is at $66.89. 

WTI US Oil: Daily Chart

A break below the year-to-date (YTD) lows of $64.31, however, would be required to re-ignite the downtrend, with the next target at around $62.00 where trough lows from 2021 will come into play, followed by support at $57.50.

Despite the bearish trend dominating, there are growing signs pointing to a possible conclusion and reversal. The mild bullish convergence between price and the Relative Strength Index (RSI) at the March and May 2023 lows – with price making a lower low in May that is not matched by a lower low in RSI – is a sign that bearish pressure is easing. 

The long hammer Japanese candlestick pattern that formed at the May 4 (and year-to-date) lows is a sign that it could be a key strategic bottom. 

Further, a right-angled triangle can also be seen forming on the 4-hour chart below, which because of its shape is biased to breakout higher. 

WTI US Oil: 4-hour Chart

The triangle could have formed after price recovered from the May 4 YTD lows. The initial rebound off the May 4 lows could be seen as a Wave A, with B descending between May 8-15. Wave C then probably rose in the week that followed before the market turned again at the start of this week, in what might be a Wave D. The recovery currently underway could be Wave E. Since most triangles are only composed of five waves this would be the last wave before the pattern breaks out. 

There is a chance the triangle might break in either direction, but it is biased to break higher. This is because the top border is flat (it is right angled). Such a move would see price rise in a volatile rally to a potential target of $79.75, calculated by taking 61.8% the height of the triangle and extrapolating it higher. This is also at the level of the 200-day SMA which is likely to provide tough resistance to any further gains. 

Such a break would probably mean price breaking above the $76.85 lower high of April 28, thereby, bringing the dominant bear trend into doubt.

False breaks are common with this pattern, however, and traders should ideally wait for a ‘decisive’ break. Such a break is characterized by a longer-than-average bullish green bar which pierces completely through the upper borderline of the triangle and closes near the 4-hour period’s highs, or alternatively three green bars in a row that also pierce above the borderline. 

Given the downtrend is dominant, however, there is still also a possibility WTI Oil price could break lower, with a decisive break below the lower border, likewise required, and a target at $67.27. This is just above where the 200-week SMA is located and likely to offer support. Traders might even wish to wait for a break below the lows of Wave B at $69.40 for added confirmation.