Crude rallies as market seen tightening
At the time of writing, WTI was up around 2.5% on the session, making good its entire losses from the day before and some. Is this the start of a major recovery in oil prices?
US Gasoline demand soars
Oil prices initially sold off on the back of inventories data showing a big build in US commercial stocks. WTI has since bounced back to rise to a new session and weekly high above $72 per barrel. The recovery is because of strong demand for gasoline, which soared to its highest since 2021, according to the Energy Information Administration.
US debt ceiling agreement optimism
Meanwhile, it also looks like investors are increasingly hopeful there will be a resolution in US debt talks, while forecast of a tighter oil market in the second half of the year is also helping to keep the bulls happy.
US President Joe Biden was speaking on the debt ceiling situation earlier, saying he is confident on an agreement and that he will hold a press conference on Sunday. In response we saw an uptick in risk-sensitive assets, including crude oil.
IEA: Oil market to tighten in second half
The International Energy Agency yesterday said it expects demand to exceed supply by more than two million barrels per day in the second half of 2023. This is largely because of the OPEC+ removing significant supply from the market. As demand continues to recover, OPEC+ supply will remain steady.
Markets showed little reaction to IEA’s assessment initially on Tuesday, as demand concerns intensified on the back of weak Chinese data. However, those concerns look like have now been priced in, with WTI creating some more bullish signals.
WTI creates more bullish signals
We have seen some bullish signals on crude oil of late.
The attempted breakdown below the March 2023 low of $64.36 earlier this month was short-lived as WTI stormed back to close higher and create a hammer candle on the daily chart. I was waiting for a retest of this level from above, which we got on Monday. As per the chart, oil bounce back from that hammer head just below the $70.00 handle, to close in the positive.
Monday’s recovery has stalled on Tuesday but have now bounced again to show some follow through on the upside above Monday’s range and resistance circa 71.70ish. If prices can hold the breakout here, then there will be more reason for would-be buyers to step in on the long side and short sellers to step out of the way.
Given that oil has been unable to find meaningful support on the back of the OPEC’s surprise decision to cut production, the onus is on the bulls to show up now…and judging by today’s price action, they are doing just that.
The bears will now need fresh bearish signals to step back in. For example, a move back below Monday’s bullish-looking candle would completely invalidate this week’s overall bullish price structure. If we go below Monday’s range at some point this week, then that should trigger technical selling as disappointed bulls exit their trades. In that case, a move back down to this year’s lows would become likely again.
Where do I think WTI is headed?
Despite elevated demand concerns, my crude oil outlook is still positive, and therefore think prices are headed higher – because of those OPEC cuts, for as long as the group complies. If that’s the case, I think WTI is more likely to rise to $80/$85 than fall to $60/65 from here.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
US Gasoline demand soars
Oil prices initially sold off on the back of inventories data showing a big build in US commercial stocks. WTI has since bounced back to rise to a new session and weekly high above $72 per barrel. The recovery is because of strong demand for gasoline, which soared to its highest since 2021, according to the Energy Information Administration.
US debt ceiling agreement optimism
Meanwhile, it also looks like investors are increasingly hopeful there will be a resolution in US debt talks, while forecast of a tighter oil market in the second half of the year is also helping to keep the bulls happy.
US President Joe Biden was speaking on the debt ceiling situation earlier, saying he is confident on an agreement and that he will hold a press conference on Sunday. In response we saw an uptick in risk-sensitive assets, including crude oil.
IEA: Oil market to tighten in second half
The International Energy Agency yesterday said it expects demand to exceed supply by more than two million barrels per day in the second half of 2023. This is largely because of the OPEC+ removing significant supply from the market. As demand continues to recover, OPEC+ supply will remain steady.
Markets showed little reaction to IEA’s assessment initially on Tuesday, as demand concerns intensified on the back of weak Chinese data. However, those concerns look like have now been priced in, with WTI creating some more bullish signals.
WTI creates more bullish signals
We have seen some bullish signals on crude oil of late.
The attempted breakdown below the March 2023 low of $64.36 earlier this month was short-lived as WTI stormed back to close higher and create a hammer candle on the daily chart. I was waiting for a retest of this level from above, which we got on Monday. As per the chart, oil bounce back from that hammer head just below the $70.00 handle, to close in the positive.
Monday’s recovery has stalled on Tuesday but have now bounced again to show some follow through on the upside above Monday’s range and resistance circa 71.70ish. If prices can hold the breakout here, then there will be more reason for would-be buyers to step in on the long side and short sellers to step out of the way.
Given that oil has been unable to find meaningful support on the back of the OPEC’s surprise decision to cut production, the onus is on the bulls to show up now…and judging by today’s price action, they are doing just that.
The bears will now need fresh bearish signals to step back in. For example, a move back below Monday’s bullish-looking candle would completely invalidate this week’s overall bullish price structure. If we go below Monday’s range at some point this week, then that should trigger technical selling as disappointed bulls exit their trades. In that case, a move back down to this year’s lows would become likely again.
Where do I think WTI is headed?
Despite elevated demand concerns, my crude oil outlook is still positive, and therefore think prices are headed higher – because of those OPEC cuts, for as long as the group complies. If that’s the case, I think WTI is more likely to rise to $80/$85 than fall to $60/65 from here.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
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