The fundamental and technical backdrop remains bullish for WTI

OIL PRICE OUTLOOK: BULLISH

  • WTI oil prices make a round trip and end the week little changed around the $110 level, despite high volatility
  • If China decides to lift Covid-19 lockdowns and Europe reaches an agreement to ban Russian oil imports, the energy market could recover
  • This article examines the key technical levels for WTI to watch in the near term

Most read: Crude Oil Update – Uncertainty around EU oil ban as COVID-19 cases drop in Shanghai

Oil prices have remained largely unchanged over the past five trading sessions despite high volatility. On Monday and Tuesday, WTI fell nearly 10% on demand concerns over China’s current COVID-19 restrictions and talk of the global recession, but the US benchmark quickly recouped its losses. in the following days to end the week roughly stable around $110.00 a barrel.

Looking ahead, the outlook for crude remains constructive in tight market conditions. First, China has signaled that the Shanghai lockdowns may end soon, possibly around May 20, the date on which the health authorities intend to stop community spread of the virus. Once the government begins to lift mobility restrictions that have disrupted the lives of millions of people in the country’s most populous city and disturbed everything from traveling to industry production, oil imports are expected to pick up, before the high demand summer seasonsupporting commodity prices.

There is also another bullish catalyst on the horizon: the The European Union’s plan to ban imports of Russian oil in response to the invasion of Ukraine. The terms of the embargo are still being negotiated amid strong reservations from Hungary and Slovakia, two countries heavily dependent on Russian energy that are demanding exemptions and more flexibility while securing alternative providers. However, all Member States are expected fall online in time to move forward on the final set of sanctions under consideration, possibly before the end of the month.

Although Russia has seen some of its fossil fuel exports shelved in recent weeks, it remains the European Union’s top energy supplier, supplying the region with around a quarter of its oil and commodity needs. refined. In numbers, that’s about 2.2 million bpd of crude and about 1.2 million bpd of petroleum derivatives. Details are being finalized and may change, but the ban proposed by Brussels will target these barrels, phasing out purchases over the rest of the year. While Russia will be able to redirect some of its exports to friendly countries like India and China, much of it will be lost altogether, further tightening markets and supporting WTI and Brent prices.

In terms of technical analysis, after the recent move, WTI is approaching cluster resistance, ranging from $110 to $111.75, where the May high lines up with the 50% Fibonacci retracement. of the March/April correction. If this hurdle is breached decisively, the bulls could be emboldened to attack at $116.18/$116.65, with the next key barrier corresponding to the March 24 swing high and the Fib retracement of 61.8%. On more strength, the focus shifts to the peak of the first trimester. On the other hand, if the sellers return and regain control of the market, the initial support is around $105.00, the 50-day simple moving average. Below this, the next relevant floor appears near the psychological level of $100.00 (also medium-term trendline support).

DAILY CRUDE OIL CHART

WTI Oil chart prepared using TradingView

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—Written by Diego Colman, Market Strategist for DailyFX

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