After hitting a two and a half year high last week, WTI crude oil is advancing on Monday extending gains fora fifth consecutive week. Oil prices have jumped just shy of 14% since mid-May. .
Oil prices have been on a tear across the past month. Successful vaccination programmes have meant that covid cases are falling and pandemic restrictions easing brightening the fuel demand outlook. Not even a hawkish Fed, boosting the US Dollar has managed to knock oil off its bullish run
Rising fuel demand
As economies reopen, demand expectations are surging. Demand is expected to outstrip supply. Traffic data shows that traffic levels in US and European cities is returning to pre-covid levels. A strong US summer driving season is expected to boost fuel demand further. The EIA just recently upwardly revised US demand from 1.39 million barrels a day to 1.49 million.
The number of Americans flying has also hit a post pandemic high of 2.1 million as the traditionally busy 4th July national holiday nears. Europe and the US have also agreed to open a travel corridor increasing.
Evidence of rising demand is being reflected in inventory data. The EIA crude stockpiles saw a bigger than expected draw of -7.5 million barrels. This was partly thanks to refineries ramping up operations at the fastest clip since the pandemic started and partly owing to rising exports suggesting that demand is on the rise globally.
Iranian oil returning?
The risk of Iranian oil flooding the market has also eased slightly following the Iranian presidential elections. The election of a hardline judge Ebrahim Raisi, who is already under US sanctions could delay talks to revive the 2015 nuclear deal.
Iran boasts the fourth largest oil reserves in the world, the removal of US sanctions would allow it to resume exporting oil.
Even with Iranian oil potentially returning to the market at some point, OPEC+ production cuts are still in place. The EIA recommended that the oil producers group eased output cuts to meet supply demands.
Stronger US Dollar
Traders could keep an eye on the US Dollar after the Fed’s hawkish shift last week. The strengthening US Dollar briefly pulled on the price of oil in the previous week. More hawkish Fed speak could boost the greenback making oil more expensive for holders of other currencies.
Goldman Sachs have said that they see oil reaching $100 a barrel whilst Bank of America are even more bullish seeing oil hit $100 per barrel by next year.
Where next for WTI crude oil?
WTI crude oil trades just shy of its recent two and a half year high of 72.79 hit last week. It trades above its 50 & 100 dma and its ascending trend line dating back to early November.
The RSI is supportive of further gains whilst it remains out of overbought territory.
Resistance can be seen at 72.79 the previous high, followed by 73.50. I to would take a move below 70.00 the psychological level and the ascending trendline support and Friday’s low to negate the near term uptrend. This could open the door to a deeper decline to 67.85.