WTI crude oil has formed a head and shoulders chart pattern on the short-term time frame, indicating that a reversal from the earlier uptrend could be in the works.
Price is currently testing the neckline support around the $59.00-59.50 area, and a break below this level could confirm a shift in bearish momentum.
The energy commodity is drawing support from the area of interest highlighted in blue, which lines up with the formation’s neckline and the 200 SMA dynamic inflection point. If this floor gives way, crude oil could tumble by the same height as the chart pattern, potentially setting its sights on targets below $57.00 per barrel.
The 100 SMA (blue) is above the 200 SMA (red) to confirm that the path of least resistance is still to the upside or that the climb could gain traction from here. However, the gap between the indicators is narrowing to reflect weakening bullish momentum, suggesting that bears are starting to take control.
Price is also moving closer to both dynamic inflection points, so these could be critical levels to watch. A sustained break below the 200 SMA could signal that selling pressure is intensifying and that lower targets are in the cards.
Stochastic is hovering around the middle ground, indicating indecision among market participants for now. However, if the oscillator turns lower and slides toward oversold territory, that would mean a return in selling pressure. The indicator has plenty of room to move south, so losses could be sustained if bears maintain control.
RSI is also treading sideways close to the 50 midpoint, reflecting a tug-of-war between buyers and sellers. Turning lower from here would suggest that sellers have the upper hand and could push for a break of support.
WTI crude oil could take cues from inventory data and geopolitical developments, while broader risk sentiment and dollar moves could also influence price action in the near-term.