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Oil prices are dipping once again on covid-19 concerns and OPEC production speculation. Could a longer-term top be in the works?

Bearish Reversal Ahead in Oil?

WTI Crude Oil Futures Daily
WTI Crude Oil Futures Daily

For our futures and CFD traders out there, the oil markets hits the top of the watchlist as we see quite a few price action patterns to keep an eye on.

On the daily chart above of the crude oil futures market, we’ve got several patterns playing out the could draw in net oil sellers over the coming weeks. First, we already saw a rejection of the bulls at the $75.00 handle at the beginning of July, which is the 2018 peak before oil’s drop to below $0 at the depths of the 2020 pandemic crash. That area is being rejected once again in the new month, forming a quasi-evening star pattern over the last week.

And if tomorrow’s daily candle forms another big bearish one at the close, then that completes a Three Black Crows pattern that could also draw in technical sellers on the pair. Also, these candlestick patterns are all occurring in the midst of a longer-term bearish divergence pattern formation between price action and stochastic.

So in terms of price action, there are quite a few arguments for bulls to take some profits and bears to take some risk as the market retests three-year highs. And in terms of fundamentals, the recent acceleration in covid-19 cases around the globe has traders worried that oil demand may fall in the coming months as economies take action to slow the spread.

Broad risk sentiment may also start to lean negative on covid-19 concerns with recent business sentiment updates showing signs that the global economy may be heading for a slowdown.

As long as the world continues to have trouble containing the pandemic, oil may start to give up its 2021 in the coming months, and we’ll be watching out for that three black crows pattern to confirm the reversal to potentially build a longer-term short position.

What do you guys think? Is oil about to turn lower? Will OPEC cut production? Can this new pandemic wave be contained and bring back oil demand? 

Let me know in the comments below, and as always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.

This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.