Oil Prices Surge as Geopolitical Risk Rises

Oil Prices Surge

WTI crude oil's current bullish trend, closely following Brent crude's movements, has placed it at a crucial point for traders. This trend, driven by a mix of geopolitical tensions and economic factors, is pivotal in determining the future direction of oil prices.

Heightened Geopolitical Tensions Influencing Market

The surge in WTI crude oil prices is primarily due to escalating geopolitical unrest in the Middle East, especially tensions involving Israel and Iran. Such conflicts often lead to uncertainties in oil supply, thereby influencing global oil prices. This situation has directly contributed to the upward movement of WTI prices.

Brent Crude's Impact on WTI

Parallel to these geopolitical developments, Brent crude has experienced a significant rally, surpassing $91 per barrel. This upward trend in Brent, a global oil benchmark, has directly influenced WTI prices. The close correlation between these two benchmarks means that trends in Brent often have a similar effect on WTI, as seen in the current market situation.

Economic Factors Shaping the Oil Market

In addition to geopolitical issues, economic elements are also shaping the oil market. The U.S. Federal Reserve's monetary policies and the global economic health significantly impact oil prices. The Fed's measures to manage inflation and promote economic stability are crucial in this context. A strong economic recovery can lead to increased oil demand, supporting higher prices, while economic slowdowns or policy changes that impact growth can lead to lower oil prices.

EIA Report: A Mixed Bag for Oil Traders

The recent U.S. Energy Information Administration (EIA) report revealed a rise in U.S. crude oil stocks, contrary to analysts' expectations of a decrease, with a significant build of 3.2 million barrels. This increase contrasts with the substantial decrease in gasoline and distillate inventories, which exceeded analysts' forecasts. High nationwide gasoline prices, stable OPEC+ production, and various refinery outages in the U.S. are influencing these trends. The market is balancing these factors, indicating both potential supply growth and increased fuel demand, especially as the summer driving season approaches.

Supply-Demand Imbalance

The oil market is currently experiencing a supply shortage, exacerbated by OPEC+ production cuts and reduced investment in oil exploration. On the demand side, there's a resurgence as global economies recover from the pandemic. This imbalance between supply and demand is a critical factor supporting the current bullish sentiment in the oil market.

Weekly Technical Analysis

Weekly May WTI Crude Oil

Trend Indicator Analysis

The main trend is up. This week, the market blew through our first target at $84.87, putting $88.31 on the radar. With this move, the new main bottom becomes $71.52.  A trade through this level will change the main trend to down.  

Retracement Level Analysis

The contract range is $39.02 to $88.31. Its retracement zone at $63.67 to $57.85 is the major support zone. This area stopped the selling the week-ending June 16, 2023 at $65.18. This is a major long-term value zone.

The intermediate range is $58.73 to $88.31. Its retracement zone at $77.10 to $79.95 is resistance. The market is currently testing this area.

The minor range is $65.00 to $85.75. Its retracement zone at $73.52 to $70.03 is another value zone.

The short-term range is $88.31 to $65.18. The market is currently on the strong side of its retracement zone at $79.47 to $76.75, making it near-term support.

Weekly Technical Forecast

The direction of the May WTI crude oil market the week-ending April 12 is likely to be determined by trader reaction to the short-term Fibonacci level at $79.47.  

Bullish Scenario

A sustained move over $79.47 will signal the presence of strong buyers. If this creates enough near-term momentum then we could see an acceleration to the upside with the main top at $88.31 the next target. There is little resistance on the weekly chart until this level.

Bearish Scenario

A sustained move under $79.47 will indicate the presence of sellers. This could drive the market into the short-term 50% level at $76.75. Holding this level could create a rangebound trade. If it fails to hold as support then $73.52 to $70.03 will become the next target zone.

Short-Term Market Forecast

The short-term outlook for WTI crude oil remains bullish. Geopolitical tensions in key oil-producing regions are expected to maintain supply concerns, which support higher prices. Additionally, the performance of Brent crude remains a relevant factor for WTI trends. The actions of the Federal Reserve and the path of global economic recovery will also be crucial factors to monitor.

However, this bullish outlook comes with potential risks. Any significant reduction in geopolitical tensions or changes in economic policies, especially by the Federal Reserve, could change the market direction. Traders should stay alert to these evolving situations.

In summary, the combination of geopolitical and economic factors, along with supply-demand issues in the oil market, suggests a continued upward trend for WTI crude oil in the short term. However, this trend depends on a complex and changing global scenario, requiring traders to monitor developments closely and adapt their strategies accordingly.

Technically speaking, there appears to be enough upside momentum to take a shot at $88.31 next week, followed by the elusive $90.00 level. The uptrend is likely to remain in motion until hit by an opposing force like a weekly closing price reversal top.