The crude oil price had one of the most remarkable comebacks in financial markets history during the COVID-19 pandemic. The drop below zero at the start of the pandemic remains historic, but so does the bounce.
At the current levels, though, the price of oil has met dynamic resistance. The level is important because the resistance comes from the weekly chart, a large timeframe, difficult to ignore.
The strong economic recovery seen recently around the world led to rising demand for oil. Because supply did not rise as much, the price of oil reached above $75.
One big unknown remains the world leaders’ negotiations with Iran. The nuclear talks are postponed, for now, awaiting the instauration of the new Iranian president. As such, the potential Iranian oil would reach the market only in the fourth quarter of the year, supporting the price of oil for now.
According to the last estimates from OPEC, the world oil demand is set to rise by 3.28 million barrels per day to 99.86 million barrels per day in 2022. The monthly report also revealed that oil demand in 2022 would probably reach comparable pre-pandemic levels.
The technical picture reveals that the price of oil met dynamic resistance against a rising trendline on the weekly timeframe. Also, the market may start consolidating in the right shoulder of a potential inverse head and shoulders pattern.
In other words, further upside in the WTI crude oil price is unlikely, and aggressive bears may try to short the market. However, shorting it is a contrarian approach, so tight money management rules are mandatory.
Bears may want to stay on the short side with a stop-loss at the highs and a take-profit level at the $60. This way, the risk reward is big enough for the trade to make sense from a risk management perspective.
Follow Mircea on Twitter.
