Oil and Natural Gas Technical Analysis: Oil Drops from Resistance

WTI crude oil (CL) declines from the 200-day SMA, near $75.20, showing bearish momentum in the short term. This correction from resistance was after the price increase during the last week of December. The recent gains reflect optimism about higher Chinese demand. On the other hand, the American Petroleum Institute (API) reported a significant decline of 4.022 million barrels last week, far exceeding the market’s expectation of 250,000 barrels. The chart below illustrates four consecutive weeks of declining crude oil stock changes. This sharp inventory drop highlights tightening supply, which supported WTI prices during the holidays and drove demand. However, the recent price decline is attributed to strong technical resistance as the market appears overbought in the short term.

WTI Crude Oil (CL) Technical Analysis

Oil Daily Chart – Bearish Hammer

The daily chart for WTI oil shows that the price trades within the red-dotted triangle. The price reached the 200-day SMA resistance of around $75.25, and it produced a bearish hammer. This bearish hammer shows the negative price action. A break above $75.25 could push the price toward $78 and negative the short term bearish momentum. However, the RSI has hit the overbought zone as the oil price hits the 200-day SMA.

Oil 4-Hour Chart – Ascending Channel

The 4-hour chart for WTI shows that the price trades within an ascending channel. As the price approaches the 200-day SMA, it has hit the resistance of the ascending channel at $75.25. The support levels remain the $72.50 and $71. A break below $71 would signal a continuation of the downward trend in the oil market.

Brent Oil (BCO) Technical Analysis

Brent Daily – Resistance at 200-Day SMA

The daily chart for Brent oil (BCO) shows that the price has reached the 200-day SMA and produced a bearish hammer. The 50-day SMA remains below the 200-day SMA, which signals a bearish trend. Moreover, the price reversal from the 200-day SMA indicates that the rally may have ended and the downward trend could resume.

Brent 4-Hour Chart – Ascending Broadening Wedge

The 4-hour chart for Brent oil shows that the price is trading within an ascending broadening wedge pattern. The strength in the oil market during January has pushed the price near the resistance of this wedge pattern. The RSI indicates overbought conditions near this resistance, suggesting a potential short-term price correction.

Natural Gas (NG) Technical Analysis

Natural Gas Daily Chart – Cup and Handle Pattern

The daily chart for natural gas shows that the price has broken out of the cup-and-handle pattern, signalling a positive outlook. After the breakout above $3, the price has formed an ascending broadening wedge pattern, surpassing the key level of $3.60. The emergence of the ascending broadening wedge following the cup-and-handle breakout indicates strong price volatility. This volatility is driven by heightened heating demand due to extreme weather forecasts. The resistance for this rally will likely be around the $4.60 level.

Natural Gas 4-Hour Chart –Ascending Channel

The 4-hour chart for natural gas shows the formation of an ascending channel pattern. Additionally, the emergence of an ascending broadening wedge within the ascending channel indicates strong volatility within the upward momentum, suggesting that the price may continue to trend higher. The price has found support around $3.35 and appears poised for further upside.