Oil prices extend losses after fresh concerns on global growth. What could happen next? The following technical analysis is based on the Elliott wave theory.
The Oil market is extending losses into the London market as risk-off set in. The uncertain atmosphere as a result of new developments from the US-China trade conflict has cut down investors’ risk appetite. WTI Oil slumped from $58 at the beginning of the week and is currently priced at $55 per barrel. Likewise, Brent has shed $3 this week so far and is currently trading at $60 per barrel.
Doubts have increased over the US-China conflict resolution
Recent comments from US and China have reduced investor’s optimism of a successful trade deal between the world’s largest economies. There are fears that if the conflicts continue, global growth will shrink and then a recession might set in. President Trump has reiterated that China would have to make an acceptable deal or face higher tariffs.
In addition, the US has interfered in the Hong Kong protest which has angered the Beijing government. Before the latest update, it was largely believed that the best scenario possible is that the first phase of the deal will be approved. However, this sentiment is becoming threatened. China is the largest importer of Oil while the US is the largest consumer of the commodity. Oil prices are therefore expected to react.
Other developments aside from the trade war include the following.
- A mild weather forecast hit natural gas prices. The commodity fell on Monday and Tuesday as warmer weather increases supply.
- Iranians are protesting after the government increased fuel price. This comes as a result of the US sanctions that have crippled the country’s oil exports and production.
- The American Petroleum Institute (API) has estimated an inventory build of 5.954 million barrels which is much bigger than the expected 1.543 million. This is another case that could lead to oversupply.
Oil prices extend losses – Crude Oil technical analysis
Technically, we expected crude oil prices to plunge. The rally from October looked corrective. The September 13 to October 3 fall was expected to continue. In the last update, we looked at the corrective patterns emerging with the charts below (All the charting tools below are from TradingView)
A triple zigzag pattern was emerging within a rising channel. However, prices didn’t hit much higher before breaking below the corrective channel as the charts below show. We will most likely see a retest of the October 3 lows.
A minor bullish correction up to 50-61.8% Fibonacci retracement could happen before the market continues on the downside.