WTI oil prices have pulled back since mid-April after the market priced out a risk premium from oil prices. This came after Iran’s indication of no immediate retaliation against Israel and downplaying the impact of the recent strike, raising hopes for reduced hostilities between the two countries. Additionally, recent data from the Energy Information Administration showed a higher-than-expected increase in US crude inventories which implies weaker demand and is considered bearish for prices.
From a technical perspective, WTI will likely continue its recent pullback towards a confluence of support at the US$80 level before a rebound to resume its uptrend.
WTI oil is currently retracing from its uptrend channel resistance after breaking down below the US$85 level, which subsequently acted as a resistance during a retest of the prices following Israel’s strike on Iran. The current price action suggests that sellers are in control and we are likely to see a further pullback in price towards the channel support at US$80 before a highly probable rebound.
Furthermore, WTI oil is expected to find support at the US$80 level, which is confluent with a retest of the neckline resistance breakout from an inverse head and shoulders pattern in March.
The US$80 level aligns with a 38.2 per cent Fibonacci retracement level, calculated using the swing low of US$67.70 in December 2023 to the swing high of US$87.70 in April 2024. This retracement level is crucial to uphold the current uptrend that began in December 2023.
Moving forward, WTI oil is expected to pull back slightly further and encounter support at the US$80 level before continuing its upward trajectory. Oil markets are also expected to grow tighter in the coming months with recent production curbs from Russia amid strikes on its major fuel refineries and the approaching US driving season in the summer. Typically, this season will boost demand for oil in the world’s largest fuel consuming nation.
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The writer is research analyst at Phillip Securities Research
