Crude oil saw some support from Powell’s dovish stance but failed to break key resistance levels, erasing earlier gains. The market’s attention is now on the upcoming NFP report, which may affect expectations regarding interest rates and the Federal Reserve’s position.
Strong NFP data could exert short-term pressure due to hawkish recalibrations impacting growth forecasts. Conversely, a dovish Fed may push crude oil to new highs, potentially reaching the 70.00 price area on expected increased demand. Weak data might initially hinder the market but could ultimately support it as dovish expectations grow.
The Daily Chart Overview
On the daily chart, crude oil briefly rose above the 64.00 resistance zone then fell back, adhering to a major downward trendline. Sellers may target a drop to 59.77, while buyers aim to break the trendline, eyeing the 70.00 level. The 4-hour chart offers limited insights, requiring closer examination on the 1-hour chart.
The 1-hour chart reveals a minor downward trendline suggesting bearish movement. Sellers may continue to push for lower prices, while buyers seek a breakout rally. Upcoming catalysts include US Jobless Claims figures and the US PCE price index, both of which might influence the market.
We are seeing that crude oil is struggling to push higher, even with signs that the Federal Reserve might be leaning towards a more dovish policy. The price failed to break through the key $64 resistance level and has since fallen back. The market’s attention is now firmly on upcoming US jobs data to get a clearer direction on interest rates.
The latest Energy Information Administration (EIA) report from last week added to this cautious sentiment, showing a surprise inventory build of 1.5 million barrels when a draw was expected. This suggests that demand may not be as robust as hoped, giving sellers more confidence around the current price levels. This fundamental pressure helps explain why the technical breakout above the major downward trendline failed to hold.
The Weeks Ahead
For the coming weeks, we should watch the Non-Farm Payrolls report very closely as it will be a major catalyst. A strong jobs number could signal a more robust economy, but it might also delay any potential rate cuts, likely pushing oil prices down toward the $59.77 support level. In this scenario, buying short-dated put options or initiating bear put spreads would be a logical way to position for that downside.
On the other hand, a soft jobs report could trigger an initial sell-off on recession fears, but we would view this as a potential buying opportunity. We saw a similar pattern in late 2023, when weakening economic data prompted a dovish Fed pivot that ultimately boosted asset prices. Therefore, a dip caused by a weak report could be a chance to purchase call options targeting an eventual move toward the $70 mark.
Given the uncertainty ahead of the data release, we expect implied volatility on oil options to rise, making them more expensive. To counter this, using vertical spreads can be a cost-effective strategy to express a directional view. This allows us to define our risk and target specific price movements without paying the high premium of an outright long call or put.
