Looking at the Daily Chart, WTI Crude Oil may have ended its Big Cycle with 5 big waves between parentheses and now we are waiting for the correction to occur, but there are 2 possible scenarios for this correction:
1- We could see a small correction to retest the previous wave 4 of (5) at $51.60/barrel before continuing its way up.
2- WTI Crude oil could extend its correction to retest the previous wave iv of 3(5) at $46.85/barrel, and if managed to break it, we could see a big drop to retest the previous wave (4) also known as big 4 at $34.20/barrel which I think could be the most probable scenario.
Several reasons that made Oil prices bounce back in 2020, such as:
- China fully recovering from COVID-19 in the second quarter of 2020 and this was accompanied by record oil imports as the government embarked on a plan to boost its reserves.
- OPEC members and its allies decided to cut the output. In July, they slashed oil production by 9.7 million barrels per day. At the same time, many US shale producers went out of business. In total, the number of active oil rigs in the US fell from more than 600 in January 2020 to a multi-year low of 272.
- The US dollar has declined against most currencies in 2020. A weaker US dollar is usually better for dollar-traded commodities like oil because it indirectly increases demand.
- Hopes of a Covid-19 vaccine and the eventual recovery of the global economy helped push the price of oil and other commodities higher. Also, the record stimuli in the US helped to boost sentiment in oil markets.
However, the number of coronavirus cases is rising around the world and we expect new strains to suddenly appear and cause fear in the markets. In the UK, the government has announced a major seven-week lockdown, and also other European countries have announced some restrictions. Thus, this can lead to a big drop in oil prices by mid-2021 potentially reaching $34.20/barrel if not lower.
1- We could see a small correction to retest the previous wave 4 of (5) at $51.60/barrel before continuing its way up.
2- WTI Crude oil could extend its correction to retest the previous wave iv of 3(5) at $46.85/barrel, and if managed to break it, we could see a big drop to retest the previous wave (4) also known as big 4 at $34.20/barrel which I think could be the most probable scenario.
Several reasons that made Oil prices bounce back in 2020, such as:
- China fully recovering from COVID-19 in the second quarter of 2020 and this was accompanied by record oil imports as the government embarked on a plan to boost its reserves.
- OPEC members and its allies decided to cut the output. In July, they slashed oil production by 9.7 million barrels per day. At the same time, many US shale producers went out of business. In total, the number of active oil rigs in the US fell from more than 600 in January 2020 to a multi-year low of 272.
- The US dollar has declined against most currencies in 2020. A weaker US dollar is usually better for dollar-traded commodities like oil because it indirectly increases demand.
- Hopes of a Covid-19 vaccine and the eventual recovery of the global economy helped push the price of oil and other commodities higher. Also, the record stimuli in the US helped to boost sentiment in oil markets.
However, the number of coronavirus cases is rising around the world and we expect new strains to suddenly appear and cause fear in the markets. In the UK, the government has announced a major seven-week lockdown, and also other European countries have announced some restrictions. Thus, this can lead to a big drop in oil prices by mid-2021 potentially reaching $34.20/barrel if not lower.
