Is crude oil preparing for a relief rally after breaking medium-term support levels, or will the bearish trend continue?
Crude oil lost another 2.08% on Monday, extending large declines from Thursday and Friday. This continued selling pressure has caused substantial technical damage to the chart, with prices now at multi-year lows. However, Tuesday morning is showing signs of stabilization, with the price moving higher (+0.9%)
For oil markets specifically, these developments are bearish:
- Medium-term support levels have been decisively broken, causing technical damage.
- Growing recession fears could significantly reduce global oil demand.
- Markets are experiencing high volatility due to tariff developments.
- A relief rally is possible, as is typical after such sharp declines.
Oil Price Broke Key Support
The daily chart of crude oil futures is showing severe technical damage following the recent breakdown. Prices have broken below key support levels ($65-66), confirming the bearish medium-term outlook. However, markets rarely move in straight lines, and after such a sharp decline, a technical rebound toward recently broken support levels (which would now act as resistance) is a possibility.
Weekly Chart: Bearish Continuation Pattern
On the weekly chart, we can see that crude oil has broken below significant support levels that had previously held since early 2021. This breakdown suggests the potential for further downside in the coming weeks and months, though not necessarily in a straight line.
Conclusion
Crude oil's technical picture has deteriorated following the breakdown below support levels. As of Tuesday morning, the market is stabilizing with a modest gain, potentially marking the start of a short-term relief rally.
With prices at their lowest since 2021, we may see some technical bounces from oversold conditions. However, the risk/reward ratio does not currently justify taking any positions.
For now, my short-term outlook is neutral.
Here’s the breakdown:
- Crude oil has broken below crucial support levels amid escalation in trade tensions.
- The medium-term outlook appears bearish following technical damage.
- A relief rally toward broken support is possible in the near term.
- In my opinion, the short-term outlook is neutral.
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Thank you.
Paul Rejczak,
Stock Trading Strategist