WTI Crude Oil

Oil prices are creeping higher alongside geopolitical risk - however, if Middle East tensions fade, crude should fall back to its long-term average around $94.

Technical View

Oil prices has broken up and above their long term range ceiling at $98.80 and the psychologically vital $100 level. Fundamental, geo-political risk is the main theme behind higher prices - a theme which only began influencing speculative flows in early July.

Key short-term support is at $105 and then $104.25 to confirm or reverse the trend. Since July 2nd, WTI crude has seen significantly higher highs and strong upward price action intraday. Reversals have typically been between 120-150 cents so buy positions are favored on dips. If we see WTI close above its daily pivot at 105.61, that will be an additional bullish factor for next week.

Given current market conditions, we see Oil prices continuing to rise beyond $108 as speculative momentum builds and the Egyptian theme captivates market attention.

R4 109.61 (August 2008 low)

R3 109.45 (May 2011 high)

R2 106.75 (March 2012 high)

R1 105.99 (recent high)

S1 105.00 (Feb-Apr congestion)

S2 104.25 (intraday level)

S3 102.18 (July 2003 high)

S4 100.75 (intraday level)

PIVOT: 105.61

Fundamental View

Oil prices continue to be sensitive to geo-political risk and supply pressure. The ongoing bitter political dispute was already creating market tremors – the eruption of violent battles is only adding to uncertainty and fear in the region. A civil war in Egypt would be catastrophic for the global risk-on story. Oil prices are likely to act like a barometer for geopolitical risk in the Middle-East over the next few weeks/months.

Be aware that historically, a major increase in oil and gas prices acts as a major economic headwind for economies with high oil consumption rates. China and the US are the world’s two largest oil consumers, so if both WTI and Brent prices continue to rise, the U.S. recovery will suffer alongside PBoC efforts to cap inflation and excessive speculative activity in China.

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Commissioned by Think Forex

Written by George Tchetvertakov

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