The WTI crude oil price is attempting to extend its gains for the second consecutive day, hovering around $73.10 per barrel in the early hours of Tuesday’s trading.
Prices are receiving support from geopolitical disruptions affecting trade and supplies, following an attack by the Houthi armed group on merchant ships near Yemen.
Yesterday, a Norwegian commercial vessel was targeted in the Red Sea, prompting the major British oil company British Petroleum to temporarily halt all sea transport operations across the Red Sea. Leading shipping companies are also considering avoiding the Suez Canal currently, heightening concerns about supply disruptions and thereby supporting oil prices.
In response, the U.S. Secretary of Defense announced that Washington would ally with defense ministers in the region, engaging in virtual talks on Tuesday to address the Houthi threat to supplies.
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I believe the extended cuts of 50,000 barrels per day from Russia have played a role in supporting and boosting crude oil prices. Additionally, U.S. officials revealed efforts to encourage shipping companies to provide more information about their dealings with Russian oil to enhance sanctions enforcement.
From my perspective, crude oil prices have expanded their ascent for four consecutive days, supported by the weakness of the U.S. dollar after the Federal Reserve ended its tightening policy cycle, signaling a potential interest rate cut in 2024, according to market pricing. However, the recent attack on Norwegian-owned ships and oil shipping companies avoiding the Red Sea is currently impacting oil prices.
The escalation in geopolitical risks, manifested in regular hostile acts towards merchant ships in the Red Sea by Houthi rebels, undoubtedly plays a role in the short to medium-term rise in oil prices. Approximately 15% of global shipping traffic passes through the Suez Canal, the shortest navigational route between Europe and Asia.
Meanwhile, I also believe that the increase in supply has mitigated the rise in crude oil, but Russia and Saudi Arabia, both extending oil production cuts into the first quarter of 2024, continue to support oil prices.
Finally, despite the potential disruption of supplies in the Red Sea due to Houthi activities in Yemen, oil prices initially faced pressure before sharply reversing in the midday.
The driving factor behind the sudden shift in sentiment was the news that British Petroleum became the latest global company to announce a temporary halt to all tanker crossing operations across the Red Sea until further notice. This seems to have led to a slightly bullish bias, along with the possibility that inflation may become more challenging with rising trade costs across supply chains.
Technical analysis of the oil (WTI) prices
Expectations for crude oil remain uncertain due to recent political and economic developments. However, the daily moving averages (DMA) positioned at $77.70 above the crude oil price may exert negative pressure. On the other hand, further escalation in the Middle East could lead to price increases, along with concerns about a global inflation slowdown.
The daily chart indicates crude oil as neutral to bearish, but today’s surge could pave the way for a new trading range within the $72.22 – $76.00 zone before testing the 200-day moving average (DMA) at $77.72. Conversely, achieving a daily close below the November 16th monthly low of $72.22 may support a decline to levels around $70.00, followed by the December low at $67.74.
Oil (WTI) Prices Chart –- XS.com.
On the flip side, oil prices may gain strength as commodities, in general, receive a boost from investors pricing in statements from the Federal Reserve regarding interest rate cuts. Lower interest rates imply increased spending, growth, production, and greater demand for essential commodities.
Therefore, the $74 level serves as the initial resistance for the crude oil price. Once breached, the primary resistance at $77.70 becomes the next target. A breakthrough and sustained trading above this key resistance will aim for the $84 level, with oil prices targeting this milestone upon achieving a daily close above $80.
Support Levels: $71.82 – $70.80 – $69.11
Resistance Levels: $73.80 – $74.90 – $76.50
