WTI Crude Oil Forming Potentially Bearish Reversal Top

U.S. West Texas Intermediate crude oil futures are trading lower late in the session on Thursday after giving back earlier gains. The price action suggests traders are trying to balance concerns about tight worldwide supply with expectations the U.S. Federal Reserve will soon tighten monetary policy.

At 20:37 GMT, March WTI crude oil is trading $86.53, down $0.82 or -0.94%. The United States Oil Fund ETF is at $61.62, down $0.06 or -0.10%. The high of the session is $62.70.

Weighing on prices, the U.S. Federal Reserve said on Wednesday it was likely to raise interest rates in March and planned to end its bond purchases that month to tame inflation. The U.S. Dollar climbed after the announcement, making oil more expensive for buyers using other currencies.

Traders are starting to turn their attention to a February 2 meeting of the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, a group known as OPEC+. OPEC+ is likely to stick with a planned rise in its oil output target for March, several sources in the group told Reuters.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through the intraday high at $88.54 will signal a resumption of the uptrend. A move through $81.90 will change the main trend to down.

The minor range is $81.90 to $88.54. Its 50% level at $85.22 is the first target.

The second minor range is $77.34 to $88.54. Its pivot at $82.94 is the next potential target. The third 50% retracement zone target level is $81.28.

Daily Swing Chart Technical Forecast

The direction of the March WTI crude oil market into the close on Thursday is likely to be determined by trader reaction to $87.35.

Bearish Scenario

A sustained move under $87.35 will indicate the presence of sellers. If the move creates enough downside momentum then look for a break into $85.22.

A failure to hold $85.22 will indicate the selling pressure is getting stronger. This could trigger a break into the pivot at $82.94. If this fails, then look for the selling to possibly extend into the main bottom at $81.90 and the 50% level at $81.28.

Bullish Scenario

A sustained move over $87.35 will signal the presence of buyers. This could trigger a surge into the intraday high into $88.54. This price is a potential trigger point for an acceleration to the upside with the long-term Fibonacci level at $92.38 the next major target.

Side Notes

A close under $87.35 on Thursday will form a potentially bearish closing price reversal top. If confirmed, this could trigger the start of a 2 to 3 day correction. If this correction is strong enough to take out $81.90 then the main trend will change to down on the daily chart.