Crude oil prices were lower first thing this morning, following a slight drop in the previous session. The small drop comes hot on the heels of a multi-week winning run, with WTI steadily climbing from a major support area of around $55 to above $60 per barrel. The key question is will the dip buyers step in here and push oil prices? We certainly see the short-term risks tilted to the upside although the longer term crude oil outlook remains uncertain.
What factors have contributed to the recent oil price gains?
Prices have been supported in recent weeks not only because of concerns about supply disruptions in Iran, where government unrest has unnerved investors that oil supply could be hit — especially if the US gets involved — but also because of the ongoing situation in Ukraine, where the war rages on despite peace talks taking place in recent weeks. On top of this, US oil production has been hit because of the winter storms with producer losing up to 2 million barrels per day of national production, according to Reuters. The short-term risks therefore remain tilted to the upside amid disruptions – or fears thereof – to supply. The longer-term crude oil outlook is uncertain due to increased global supplies e.g., from Venezuela. But with Trump saying last week that the US has an "armada" heading towards Iran, geopolitical tensions are rising, and that is keep il prices supported in the near-term outlook.
Crude oil outlook: WTI Technical analysis
We have seen the WTI contract defend this area of support between $55 to $56, the shaded in turquoise colour on my crude oil price chart, where WTI had previously found a major bottom back in April of last year. We tested this zone a couple of times at the back end of last year and earlier this year, and we’ve bounced nicely from there, keeping the crude oil outlook from turning negative.
Now we have seen oil create an interim higher high above the early December peak of around $60 per barrel. We’ve climbed above that area now, and oil has been consolidating in a bullish formation before pushing higher last week to close above that resistance area.
At the time of this writing, that area was being tested from above and we’re seeing a bit of a bounce from that level. So, watch how oil prices close today’s session. For as long as it holds above this $60 area of support, the path of least resistance is likely to remain to the upside in the short-term, with the next upside target being $62, where we have the 200-day moving average converging as well.
Above that is this long-term shaded resistance zone, where previously major lows had been created in prior years, around $63 to $65 per barrel. The key question is whether oil prices can now kick on and push higher from here.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
