WTI OIL WEEKLY FORECAST: SLIGHTLY BEARISH
Crude oil (WTI) is up 34% from the December lows and more than 6% this week alone
WTI maintains a bullish outlook in 2022, but a temporary pullback shouldn’t be ruled out on account of technical analysis signals and some very short-term demand concerns
In this article we analyze the key technical levels for WTI for the week ahead.
Following the sell-off from late October through early December, oil (WTI) prices have rebounded aggressively and steadily, rising approximately 34% as Omicron fears began to fade and the effect of the U.S. SPR release on the market proved to be short-lived. This week alone, WTI gained more than 6% amid dollar weakness and supply constraints caused by OPEC+ inability to meet its output quotas (many members are failing to step up production and falling short of their targets).
While oil remains biased to the upside in 2022, there are several short-term headwinds that shouldn’t be ignored and that may spark a brief pull-back before the next leg higher in the commodity complex.
From a technical perspective, the recent rally appears somewhat stretched as WTI is beginning to flirt with overbought territory according to the 14-period RSI indicator. At the same time, the price’s proximity to a key resistance in the $84.95/$85.50 rangealso points to a possible reversal.
Turning our attention to fundamentals, some temporary risks come to mind. First, the slowdown in US economic activity due to the ongoing healthcare crisis may dampen demand for crude for the rest of the month and into February. Although the omicron surge is expected to peak very soon, sentiment will not change overnight, especially as the media continues to emphasize the more frightening statistics of the pandemic. Based on these assumptions, mobility is likely to remain fairly depressed, which will weigh on fuel consumption. On another note, the last time WTI broke above $80 per barrel, it sparked tough talk and threats of action from the White House. It would not be surprising if the same dynamic is repeated in the coming days.
Current developments in China may also become a bearish driver for both WTI and Brent in the short term. That said, the government is expected to release oil stocks around the Lunar New Year holidays, between January 31 and February 6, as part of a plan coordinated with the Biden’s administration and other nations. In addition, the CCP has urged people not to travel during the upcoming holidays to avoid the spread of the omicron variant, a move that may dent oil demand globally for the rest of the month, considering that the Asian country is the second-largest consumer of the commodity in the world. For these reasons, long positions in WTI do not look very attractive for the week ahead.
OIL TECHNICAL ANALYSIS
After the strong rally staged this past week, WTI is currently approaching technical resistance in the $84.95/$85.50 range – the 2021 high. If bulls manage to push the price above this barrier, we could see a move towards the $91.00 area in the coming sessions.
On the flip side, if bears return and spark a market pullback, support can be seen at $81.50 and then $80.40, but if both floors are taken out decisively, traders should prepare for the possibility of larger sell-off and a retest of the $78.00 psychological level.
CRUDE OIL TECHNICAL CHART
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—Written by Diego Colman, Market Strategist & Contributor