Crude Oil Soars to New Heights Despite a Strong US Dollar. Where To For WTI?

[MongiIG]

CRUDE OIL, US DOLLAR, RUSSIA, UKRAINE, OPEC+, WTI - TALKING POINTS

• Crude oil prices run higher as supply and demand factors face off
• Supply issues remain a problem as OPEC+ are unable to deliver
• Energy demand increases loom as the northern winter hits. Will WTI rise?

Crude oil has continued on from last week’s gain in Asian trade on Monday. With northern hemisphere storms brewing, geopolitical concerns, supply constraints and option hedging all in play, the energy commodity appears to have little choice for now.

Tensions continue to rise around the Ukraine-Russian border as Moscow orders more troops to the area. A conflict in this region could undermine European energy sources and has added to global oil supply concerns.

The Pentagon has de-classified a number of military intelligence reports showing the build-up of weaponry. They have also pointed toward a mis-information campaign within the Ukraine that they say has been orchestrated by Russia.

A number of analysts and commentators have made calls for oil prices over $100 bbl in the last few weeks. With OPEC+ unable to deliver in full on their output increases of late, their forecasts are drawing near.

On Wednesday, OPEC+ are due to discuss output targets at their scheduled meeting.

Above $90 bbl may see option underwriters start to hedge their exposure. According to data from Bloomberg, the number of calls that have been written far outweigh the number of puts above $90 bbl.

This would lead to buying of oil as the price accelerates north. Once the price has moved up through various thresholds and the options have been hedged, if the price is to fall, then the hedging of these options will see those same buyers turn around and start selling. This could add further to price volatility.

 

CRUDE OIL TECHNICAL ANALYSIS

WTI crude oil traded at its highest level since October 2014 on Friday.

The move up has nudged against the 21-day simple moving average (SMA) based Bollinger Band but it has been unable to close outside the upper band. This could indicate that the market is comfortable with the rate of change in the rally.

On the topside, resistance may be offered at the recent previous high of 88.84.

The 10-day simple moving average (SMA)is currently just above a prior pivot point at 85.90 and might provide support.

Previous lows and pivot points of 81.90, 79.33, 77.44, 74.96, 74.76 and 73.34 could also provide support.

Chart created in TradingView

 

 

Written by Daniel McCarthy, Strategist for DailyFX.com. 31st Jan 2022