Oil bounced back on Monday morning, adding 4% for Brent and 4.5% for WTI after a more than 11% plunge on Friday. At the end of last week, the collapse was triggered by reports of a new covid variant. Reduced liquidity due to the holidays and shortened trading hours in the US increased the fluctuation amplitude.
The liquidation of long positions brought Brent back to the level of the 200-day moving average, a critical support line for the uptrend. A consolidation below this level is usually seen as a signal of a long-term trend change.
Oil's strong uptrend and staying above the 200-day moving average line has come into question on reports that the variant detected is resistant against existing vaccines. These fears subsided somewhat over the weekend, accounting for a pullback of a third from Friday's failure.
Investors are now waiting for news and clarifications from virologists and politicians to finally decide whether the current price is attractive to buy or whether we could see an even bigger discount in the coming weeks.
The technical analysis so far is on the side of the bulls. The oil price correction over the last month fits into traditional patterns if we consider the movement from November 2020 to October 2021 as one market impulse. The 200-day moving average has so far acted as support. Oil now looks less red-hot than at the end of October, having cleared the way for a new upward momentum and should return to multi-year highs by the end of this year.
