The WTI Futures (NYMEX: CL) have surged to their highest levels since mid-April as major oil producers Saudi Arabia and Russia commit to extending supply cuts. The move aims to boost oil prices and tighten the balance between global demand and supply. In addition to supply cut extensions, the uptick in oil prices is being sustained by the United States nearing the end of its interest rate hike cycle and optimistic hopes for economic stimulus measures from China.
Saudi Arabia has voluntarily extended its production cut of 1 million barrels per day (bpd) until the end of September, with the potential for further extensions or deeper cuts. Likewise, Russia plans to cut oil exports by 300000 bpd in September. However, market analysts suggest that future gains in oil prices might be capped due to concerns about China’s economic recovery and uncertainty surrounding the duration of production cuts, given the availability of spare capacity.
The WTI Futures are trading within an ascending channel pattern on the 4H Chart. Bearish momentum missed an opportunity to break down the lower boundary of the channel as the price action intersected with the 50-day moving average, hence support was established at $79.49 per barrel (BLL), the 23.60% Fibonacci level. The failed breakdown attempt encouraged a leg up towards the $83.33/BLL resistance, which poses a potential barrier to the upward trend.
If a breakout from the $83.33/BLL resistance occurs, the price action may be encouraged to retest the $87.47/BLL major resistance, which may pave the way towards higher resistance levels. However, the intersection of the price action with the upper boundary of the channel may sustain a leg down towards the $79.49/BLL support at the lower boundary of the channel. A breakdown of this support level may pave the way for a reversal towards the $75.20/BLL support at the 50% level, which may promote a downward trend.
The upward trend of the WTI Futures has been supported by further supply cuts by Saudi Arabia and Russia. If the upward momentum is sustained, the Futures may be encouraged to retest the $87.47/BLL major resistance. However, a pullback may be encouraged as the price action meets with the upper boundary of the channel, which may mark the $79.49/BLL support as a pivot point for a reversal.
Sources: TradingView, Reuters
DISCLAIMER: This report has been prepared by Fairmarkets International (“The Company”). This document is not intended as an offer, solicitation or recommendation to buy or sell financial instruments or to make any investment. The Company has used reasonable efforts to obtain information from reliable sources and the report is provided without representation or warranty of any kind (neither expressed nor implied). The Company and Fairmarkets International disclaims liability for any publication not being complete, accurate, suitable and relevant for the recipient. Specifically, the Company and Fairmarkets International disclaims liability towards any user and other recipients of this report.