A lot of talk has been made lately around popular assets like Gold's strength, the selling on BTC and the weakness of the USD while few have been paying attention to WTI Crude Oil's long-term carts. WTI has silently broken above its Historic Lower Highs trend-line (that has been in effect since the July 2008 Market Top) and is on a sustainable trade above it. This key advancement may have very important implications on the long-term, as with the DXY on a continuous fall, it appears that after decades, we may finally see Higher Highs on Oil.
On top of that, last month, the 1W chart formed a Bullish Cross (BC) between the MA50 (blue trend-line) and the MA100 (green trend-line). Since 1995, we have had seven 1W MA50/100 Bullish Crosses and all but one delivered a Higher High. In the 4 most recent ones in particular, 3 times the price reached at least the 1.5 Fibonacci extension counting from the previous bottom. The 1.5 Fib extension currently sits at 102.50.
Is this sustainable break-out from the Historic Lower Highs along with the 1W BC, good news for oil producers? Do you think $100 is realistic in the near future? Feel free to share your work and let me know in the comments section!
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While your chart story looks attractive for higher prices, Personally I am always wary of relying on technical analysis alone to make a trading decision. I think there is upside in Oil, but it comes with risks and there are a lot of unknowns. The fundamentals supporting future higher prices are based upon increasing demand with constrained supply, however, there are a few things that could limit upside to prices:
Firstly on the supply side:
-Iran Production once an agreement with the US is made and they can legitimately sell their oil on the market. While many investors believe that this is already priced-in, there has to be some downside to prices, with this extra
supply coming on stream.
-This year OPEC have been in agreement about cuts and the pace and which they would increase in supply. If a member state breaks from this agreement, this could cause problems with pricing.
-US Oil companies are busy selling off real estate in record numbers, which would provide funds for them to invest in new fields and infrastructure, this would help supply although this is a longer term measure.
On the demand side,
-China is the world’s largest crude importer and they are certainly looking at rising prices of commodities and unlike before when Oil hit $100, (which was largely due to China demand) this time, they are much more astute and -
aware of the impact on the prices in their market. They are going to be keen to not see their purchases contribute to higher prices. I am not sure how this will play out, but expect them to be more in control this time.
-We are not out of the Covid woods yet, while US car travel may be resuming, in order for air travel to resume to its pre Covid levels, we have to vaccinate the world, this will take cooperation and generosity from first world countries and of course time. This may be 3-5 years away or longer. In the meantime there is going to be a strong green push towards electric cars, so it is possible that demand for oil might not ever reach back to pre-covid levels - who knows.
That said, this year and next year what may help oil rise further may will be a weakening of the USD. Some analysts believe that the bearish pressure on the USD dollar will continue and if it breaks 89.00 than it will fall significantly. This will help the prices of everything priced in USD which includes Crude. So if you are bearish DXY than you should be long CL. Once the market has more certainty around inflation and when the Fed will start to raise rates, than we can expect to see a firmer direction in the USD. If you are long Crude, you'll be wanting the Fed to stay Dovish for longer....
butterfly229
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Beautiful chart! Looks like oil will be climbing back to three digits!