Crude continues to show strength but is overbought near-term

Introduction

Oil prices are running strong today. Brent crude has topped $93 per barrel for the first time this year. WTI touched $90 per barrel, which is a 10-month high. Anticipation of a more constrained supply for the remainder of 2023 eclipsed worries about sluggish economic expansion and the increasing stockpiles in the United States.

The International Energy Agency, on Wednesday, said that Saudi Arabia and Russia's decision to extend their oil production reductions would lead to a market shortfall during the fourth quarter.

Weekly Chart Analysis

FXCM's Brent CFD, UKOil (left), and its WTI CFD, USOil (right), continue to show strength. Both instruments have charted a higher trough followed by a higher peak on the weekly timeframe. This puts them into a defined uptrend.

Moreover, the weekly momentum, which is longer term in nature, is robust. The instruments' respective stochastics are in their upper quintiles (red rectangle). The longer this is maintained, the greater momentum support for crude.

Daily Chart Analysis

The UKOil and USOil daily charts suggest that, although the longer-term trend is up, the energy markets are overheated in the near-term.

Both instruments trade in their bullish channels between the upper blue and red lines. However, their respective RSI indicators are both over 80 (blue rectangles), which is overbought. This suggests that crude's price rise has a near-term cap to it.

A pullback or stabilisation is likely as the RSIs to normalise. However, given the strong longer-term uptrend, normalisation of the indicators is likely to chart a "dip in the uptrend" scenario, until proven otherwise.