Oil prices have been treading water since the beginning of the week after hitting their highest levels of 2018 due to worrisome energy shortages in several major regions, including Europe and China.

Energy commodities have nearly all jumped in recent weeks (slightly less so oil) as many gas, coal and oil-fired power plants have had to restart to meet electricity demand.

The energy shortage is such that Beijing has ordered China’s state-owned energy companies to secure oil supplies for this winter and some energy-intensive heavy industry plants to scale back or close, according to Bloomberg.

Coal prices continue to soar this weekend, with its price reaching an all-time high, and natural gas prices are at their highest level since 2014 amid low inventories, meaning tensions and concerns about energy production are still very much alive.

Against this backdrop, it’s hard to imagine oil prices correcting unless OPEC+ announces an unexpected production hike after its meeting next week, which some OPEC people are predicting. Indeed, four OPEC+ sources said producers were considering increasing production beyond what the agreement calls for, but none gave details on the amount or timing of the supply increase.

Oil prices may therefore continue to consolidate in the short term, but if this news of additional OPEC+ production increases proves to be true, oil prices may start to breathe.

From a technical perspective, WTI oil has been trending bullish for nearly a month, with the price per barrel even returning to test a major resistance area at around $77 corresponding to its high for the year and its 2018 high.

Since the price of oil tested this price zone, it seems to be consolidating in a descending triangle on the 4-hour chart. This technical pattern will be one to watch, as the exit will set the tempo for the near term. Traders may look towards the price action at the start of next week as an early indication of whether the downward trend will continue and enter short positions accordingly.

A bottom exit would pave the way for a correction in the price of oil, which could extend to the symbolic threshold at $70, while a top exit would pave the way for a return to the resistance zone at $77.

Support & Resistance Levels:

R3       91.67
R2       84.66
R1       77.00
S1        74.54
S2        73.50
S3        72.35

Analyzed by: Mr.Thibault Moirez, Independent Analyst