Crude oil futures settled at $65.16, experiencing a $0.87 decrease on the day. Earlier this week, the price dipped below the 100-day moving average but consistently closed above it, showing weak bearish momentum.
As a new trading week begins, sellers aim to sustain prices below the 100-day moving average to push the bearish trend. A decline past the swing area low of $63.61 could strengthen downward momentum and boost seller confidence.
Resistance Levels
On the upside, resistance levels are set at $66.96, with further resistance at the 200-day moving average of $67.99. These levels will pose challenges for any potential upward movement in prices.
We see the market is in a state of indecision, where sellers have failed to secure a definitive breakdown. The recent report from the Energy Information Administration showing an unexpected inventory build of 3.7 million barrels confirms this underlying supply pressure. This fundamental data supports the technical weakness observed in the price action.
For traders anticipating a downturn, we believe buying put options with strike prices below the $63.61 support level is a prudent strategy. This approach becomes profitable if fears about a global economic slowdown, amplified by recent data showing China’s manufacturing PMI dipping to 49.5, translate into lower oil prices. A defined-risk trade like this is sensible given the current market uncertainty.
Prepared For Upside
On the other hand, we must remain prepared for upside shocks, particularly from geopolitical events. Historically, tensions in the Middle East or surprise production cuts from OPEC+, like those announced in late 2022 that spurred a rally, can quickly reverse the trend. Therefore, purchasing call options with strike prices above the significant $67.99 resistance could be a valuable hedge or speculative play.
Given the coiled nature of the market, a breakout seems likely, though its direction remains uncertain. With the CBOE Crude Oil Volatility Index (OVX) hovering near a relatively low 30, option premiums are not excessively expensive. This presents an opportunity to construct a long strangle, which involves buying both an out-of-the-money call and put, to profit from a significant price move in either direction.
