Oil price breaks below its recent lows – is this a new downtrend?
Crude oil lost 1.54% on Monday and today it's extending its decline, falling 1.6% and reaching the $61 level. This continued weakness comes as markets are waiting for economic data and tariff developments.
For oil markets specifically, these developments are worth monitoring:
- A trade war between top oil consumers the U.S. and China showed little signs of deescalating, while U.S. President Donald Trump appeared to be preparing to roll out even more sweeping tariffs. Oil markets found little relief from a Wall Street Journal report that Trump was planning to soften the blow of his automotive tariffs.
- An OPEC+ meeting is scheduled for next week, where the cartel is widely expected to increase production for a second consecutive month. This would add more supply to the market.
- Barclays lowered its Brent crude forecast at the start of this week by $4 to $70 a barrel for 2025 and set its 2026 estimate at $62/bbl, citing "a rocky road ahead for fundamentals" amid escalating trade tensions and OPEC+'s pivot in its production strategy.
- Markets remain highly sensitive to news, with oil trading largely following broader market sentiment.
Oil: Just a Correction?
Yesterday's pullback brought the oil price to a support marked by the recent lows; however, today, the market is breaking lower.
Key technical levels to watch include the $60 support level and the resistance is now around $62.
Weekly Chart: Still a Bearish Picture
On the weekly chart, key resistance remains around $65, marked by the previously broken lows from 2023 and 2024. On the other hand, a rebound from the $55-60 area suggests a firm support level there.
Conclusion
Crude oil continues its decline, pulling back from the crucial medium-term $65-66 resistance level. It's also relatively weaker than the rebounding stock market.
For now, my short-term outlook is neutral.
Here’s the breakdown:
- Today's 1.6% decline extends the recent pullback after Monday's 1.54% loss.
- U.S.-China trade uncertainty and potential OPEC+ supply increases pose downside risks.
- The ongoing Ukraine peace talks add another layer of geopolitical uncertainty.
- In my opinion, the short-term outlook is neutral.
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Thank you.
Paul Rejczak,
Stock Trading Strategist