WTI crude oil price is under selling pressure ahead of the US crude oil inventories report with risk aversion weighing down sentiment. As of this writing, the commodity is trading at $37.42, down from where it opened for the day at $37.82.
There are a couple of factors weighing down market sentiment today. The first one is the resurgence of coronavirus cases in Beijing. In fact, the local government has put the city on lockdown and prevented residents from going outside of the city’s borders. Second, there is the rising political tension in the Korean peninsula. Reports have surfaced claiming that North Korean blew up its inter-Korean liaison office which facilitated its diplomatic relations with South Korea.
Risk aversion typically has a bearish effect on crude oil price. However, it’s worth noting that the US crude oil inventories report is due later and could attract bids into the commodity. Due at 3:30 pm GMT, the report is anticipated to show that inventories were flat last week with the consensus at 0.0. A lower reading could be bullish for crude oil price because it implies that demand would soon pick up to fill inventory. On the other hand, a higher reading could be bearish for the commodity because it would suggest that there is no urgent need to stock up on oil.
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On the 4-hour time frame, it can be seen that WTI crude oil price got rejected at resistance on the falling trendline (from connecting the highs of June 8, June 10, and June 16).
A closer look at the 1-hour chart also shows that the commodity seems to have formed lower highs after a series of higher highs. Consequently, a head and shoulders chart pattern has formed. When you enroll in our free forex trading course, you will learn that this is considered as a bearish reversal indicator. It would also seem that WTI crude oil price is already trading below the neckline support. It could indicate that there are enough sellers in the market. If this turns out to be true, we could soon see the commodity fall to near-term support at $36.68 where WTI crude oil price could test the 100 SMA. If support at that price does not hold, the next floor could be at $34.37 where the commodity bottomed on June 15.
Alternatively, a strong bullish close above yesterday’s highs at $39.08 would invalidate the head and shoulders pattern and falling trendline. It could indicate that the bullish momentum is still intact. With this, we could soon see WTI crude oil price rally to its June 8 highs at $39.98.