Oil rises on optimism about the debt ceiling and a bullish triangle is formed

• The price of oil continues its slow recovery amid nascent optimism that US lawmakers will reach an agreement to raise the debt ceiling.
• On the 4-hour chart, a bullish triangle is visible, indicating a reversal of the downtrend.
• API inventory data which will be published later on Tuesday could inject some volatility in the crude oil prices.

The price of oil is trading modestly higher on Tuesday, continuing its recovery after the poor open earlier in the week. Financial markets in general suffer from a lack of volatility due to uncertainty about the US debt ceiling. In the event of default, US demand would plummet, which would translate into a drop in oil prices. Optimism following Monday’s talks raises hopes as history shows that a last-minute deal is the norm.

At the time of writing, WTI oil is trading at $72.50 and Brent crude oil is below $76. The 4-hour chart shows the formation of a bullish right triangle, defying the overall downtrend.

Oil news and market movements

• Oil rose modestly on Tuesday as US lawmakers continued negotiations to raise the debt ceiling to prevent a US default.
• House Republican Leader Kevin McCarthy is optimistic after Monday’s talks, saying: “I think we can still do it. I think we can do it.” He adding that he thought the talks had been the most productive so far.
• The price of oil opened lower at the beginning of the week, partly as a result of concerns about world trade after the main economies clashed at the G7 summit in Japan.
• China further provoked the United States by banning imports of memory chips from US manufacturer Micron, citing security risks.
• The US dollar appreciated on Tuesday as Fed officials continue to talk about the possibility of further rate hikes, putting a headwind for dollar-denominated oil.
• The API data due to be released at 20:30 GMT will give us an idea of ​​the supply and demand dynamics in the crude oil market and could affect oil prices if the result is substantially above or below the figure. from 3.69 million barrels last week.
• A higher result would signal an increase in supply and would weigh on Oil prices, and vice versa in the case of a lower figure.

Crude Oil Technical Analysis: Downtrend Increasingly Compromised

WTI oil is in a long-term downtrend, making successive lower lows. Keeping in mind the old adage that the trend is your friend, this favors short positions over long ones. WTI Oil is trading below all of the major daily SMAs and all of the weekly SMAs except the 200-week SMA at $66.89.

WTI Oil: Daily Chart

However, a break below the year-long lows of $64.31 would be needed to reignite the downtrend, with the next target around $62.00, where 2021 lows will come into play, followed by support at $57.50.

Despite the dominance of the downtrend, there are increasing signs pointing to a possible conclusion and reversal. The slight bullish convergence between the price and the RSI at the March and May 2023 lows – with price making a lower low in May that does not coincide with a lower low on the RSI – is a sign of that the bearish pressure is easing.

The long hammer candlestick pattern that formed at the May 4 (and year-to-date) lows is a sign that it could be a key strategic bottom.

In addition, the 4-hour chart shows the formation of a right triangle that, due to its shape, could break upwards.

WTI Oil: 4-hour chart

The triangle could have formed after the recovery of prices from the lows of May 4. The initial bounce from the May 4 lows could be considered a wave A, with a descending B between May 8 and May 15. Next, wave C will probably go higher in the following week before the market turns again earlier this week, in what could be a wave D. The rally currently underway could be wave E. Since most Most of the triangles are only made up of five waves, this would be the last wave before the pattern is broken.

There is a chance that the triangle could break in either direction, but the trend is up. This is because the top edge is flat (it’s at a right angle). If such a move were to occur, the price would rally on a volatile rally to a potential target of $79.75, calculated by taking 61.8% of the triangle height and extrapolating higher. Additionally, the 200 day SMA level will offer stiff resistance.

Such a break would likely mean that the price would break above the lower high of $76.85 on April 28, thus casting doubt on the prevailing downtrend.

However, false breakouts are common in this pattern, and you should ideally wait for a “decisive” breakout. Such a breakout is characterized by a longer than normal bullish green bar that completely traverses the upper triangle dividing line and closes near the 4-hour high, or alternatively three green bars in a row that also traverse above the dividing line. .

With the downtrend dominant, however, there is still a chance that the WTI Oil price could break lower, with a decisive break below the equally necessary lower bound and a target at $67.27. This area is sitting just above the 200-week SMA, and is likely to offer support. For additional confirmation, a break below the B wave lows at $69.40 could be expected.