WTI OIL WEEKLY OUTLOOK: SLIGHTLY BULLISH
- Despite being overbought, crude oil prices maintain a constructive outlook in the short term
- Geopolitical tensions in Eastern Europe creates upside risks for commodities in the energy space
- The technical bias for WTI is also bullish
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Most read: Crude Oil Prices Flirt With $90 Amid Iran Nuclear Talks, Falling Inventories
WTI oil prices have rallied aggressively and almost uninterruptedly over the past ten weeks, surging more than 40% from their December lows to trade above $91 per barrel, amid stabilizing economic recovery and supply-demand imbalances in the commodity market. While OPEC+ has been steadily unwinding the record production cuts agreed at the onset of the COVID-19 pandemic, many cartel members have failed to meet output quotas due to capacity constraints following years of under investment, at a time when global stockpiles sit near seven-year lows.
Simultaneously, geopolitical tensions in Eastern Europe have added upside risk premium, contributing to the bullish momentum seen in the energy space. Although the situation is fluid, investors believe that Russia, which has amassed heavy artillery and more than 100,000 troops near the Ukrainian border, may invade its western neighbor in a matter of weeks or even days. The White House has admitted that diplomacy has so far been unsuccessful in persuading the Kremlin to de-escalate and has encouraged U.S. citizens to leave Ukraine immediately amid fears that a military conflict could soon break out in the region.
Should President Putin give the green light for an invasion, the United States and its allies are likely to swiftly impose strong economic sanctions on Russia, the world's second largest oil producer and a key supplier of natural gas to Europe. We do not know for sure how the situation will play out, but many experts fear that Moscow could retaliate for being the target of punitive action and cut off energy supplies to European countries, causing crude oil and natural gas prices to rise sharply.
Against a backdrop of heightened geopolitical frictions, traders will be reluctant to take large bearish positions on oil, making a significant pullback unlikely at this time, despite signs that the market has been overbought, with WTI and Brent trading more than 20% above their 200-day simple moving average and the 14-day RSI flirting with the 70 level in both cases. This situation creates upside risks for oil.
Turning to technical analysis, WTI has been moving within the confines of an ascending channel since mid-December, a bullish signal for the market. If buyers maintain the upper hand, the commodity could head higher and retest its yearly high of $93.15. Prices could be rejected at that key resistance, but if the area is breached on the topside, the channel’s upper boundary near the $97 psychological level would become the immediate upside focus.
On the flip side, if WTI takes a turn to the downside and breaks below channel support near $89.25, selling activity could accelerate, paving the way for a move towards $86.00, a floor created by the 23.6% Fibonacci retracement of the December-February rally. If the price drops below this region, the 38.2% Fib level near $81.5 would come into play.
CRUDE OIL (WTI) TECHNICAL CHART
WTI Crude Oil chart prepared using TradingView
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---Written by Diego Colman, Market Strategist & Contributor
