Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
The global oil market is undergoing a significant shift, driven by key decisions from major players like Saudi Arabia and Russia. Saudi Arabia’s decision to extend its 1 million barrel per day output cut for the rest of the year, along with Russia’s 300,000 barrel per day reduction, has created a supply-side constraint. This development has propelled WTI Crude Oil Futures (NYMEX: CL) to impressive heights, with two consecutive weeks of gains and a third week on the horizon.
The focus now turns to the upcoming U.S. inflation data as market participants speculate about potential shifts in Federal Reserve policy. The market is currently pricing in the likelihood of the Fed maintaining interest rates at 5.5% for the remainder of the year. The big question is whether oil futures can sustain their momentum amidst these supply-side challenges.
Investors are eagerly awaiting key monthly outlook reports from both OPEC and the US EIA, which could provide fresh insights into the oil market. Additionally, macroeconomic data in the coming week will offer clues about potential interest rate hikes in the U.S., with the ECB delivering its interest rate decision on Thursday, which could further influence oil prices in the short term.
Technical
On the 4-hour chart, WTI Crude Oil is currently priced at $87.97/BLL, exhibiting strength within an ascending triangle pattern, indicating bullish momentum. It’s trading above the daily pivot point and key moving averages: the 50-EMA (blue line), 100-EMA (red line), and 200-EMA (orange line), with the 50-EMA positioned above both the others, reinforcing the bullish sentiment. The Relative Strength Index (RSI) is rising at 63.66, indicating increasing bullish momentum, but declining volume suggests some caution.
Short-term trading opportunities exist towards the $88.71/BLL should the bulls sustain a break above the triangle. A break above the $88.71/BLL, on significant volume, would leave the $90.20/BLL resistance level within the bulls’ reach in the short term.
Conversely, failure to sustain upward momentum could result in short-term trading opportunities towards the triangle’s lower boundary, with support levels at $86.12/BLL and $84.47/BLL in play.
Summary
With the ongoing supply constraints and a shifting economic landscape, the oil industry remains on high alert for potential market shifts. However, should bullish momentum persist, the key resistance at $88.71 could come into play in the short term, with further potential gains if momentum continues.
However, traders should monitor volume trends and be prepared for possible reversals or corrections.
Sources: TradingView, Trading Economics, Bloomberg, The Business Times.