Oil grows bearish but SPR refill looms

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Despite OPEC cutting its output by an estimated 60 000 barrels per day in January 2023, the price of West Texas Intermediate oil dropped more than 10% from its high of $82.60. This price action follows a series of wild swings within the wide range between $70 and $83. We expect high volatility in the oil market to persist in the first quarter of 2023. Indeed, we think there is a high likelihood of USOIL falling below $70. However, with the U.S. administration seeking to refill its SPR, such a price drop is likely to be short-lived. As conclusion, we think oil will remain stuck within the wide range for a while longer.

Illustration 1.01

Illustration 1.01 shows the daily chart of USOIL. Since mid-November 2022, the price can be seen trading within the wide range between $70 and $83.

Technical analysis
Daily time frame = Bearish
Weekly time frame = Neutral/Slightly bearish

Illustration 1.02

The picture above shows the daily chart of USOIL and two simple moving averages. Yellow arrows indicate two technical developments which contradict each other. The first is a bullish crossover between 20-day and 50-day SMAs; the second is the subsequent price drop below these moving averages. These false and contradictory signals are common for moving averages when the price trends sideways.

Illustration 1.03

Illustration 1.03 displays the daily chart of USOIL and simple support/resistance levels. If the price breaks below Support 1, it will bolster the bearish odds in the short term.

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DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not be a basis for taking any trade action by an individual investor. Therefore, your own due diligence is highly advised before entering a trade.

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Over the past year, Biden's administration has been selling its Strategic Petroleum Reserves (SPR) at a profit while aiming to refill them near the lower end of the $70 price tag. Now, the USA plans to proceed with another sale of crude oil amounting to 26 mil. barrels. Our question is: "Does this imply that the U.S. administration thinks the current oil prices are still relatively high compared to where they will be in the coming months?"