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WTI oil advances to the 100-day MA; breakout or retracement imminent?

WTI moves higher with 100-day MA providing some resistance; Russian price cap review pushed back by G-7 nations and as China celebrates the Lunar New Year, flash PMIs and US GDP may provide fresh impetus for WTI’s next move.

Source: Bloomberg

WTI fundamental outlook

Crude oil enjoyed a bounce following the European open this morning buoyed by a weaker dollar. The Asian session saw WTI struggle in the absence of Chinese traders as markets remain mixed around a potential demand surge following China’s reopening.

Oil prices continue to benefit from a softer USD of late as markets come to terms with the potential rate hikes ahead. Before the Fed blackout period began last week, we heard from a host of Fed policymakers favoring further rate hikes while highlighting the dangers of persistently high inflation. At present markets seem to be taking the rhetoric of Fed policymakers with a pinch of salt as the USD continues to weaken as markets assess the probability and size of further rate hikes.

Traders continue to assess the impact of the Russian Oil ban with the US Treasury announcing on Friday that a review on the price cap will only happen in March together with its G-7 counterparts. The delay will allow for the full impact to be felt and the G-7 nations to respond accordingly with the possibility of a cap on oil products from Russia still on the table.

China remains a key driver for oil prices as markets hope that the reopening will spark a fresh surge in demand. This initial optimism was responsible for the recent rally back above the $80 a barrel a mark. The week ahead promises to be interesting as China celebrates the Lunar New Year the question will be… Can WTI sustain its upside momentum in the absence of Chinese traders and data?

From a technical perspective, WTI is on course for its third consecutive day of gains since retesting the trendline and bouncing of the 50-day MA. Price action continues to print higher highs and higher lows since printing its YTD low on December 9 while a new higher high seems on the cards at present. A daily candle close above the 100-day MA at $82.15 opens up the possibility of a run higher toward the $85 a barrel a mark. Bullish structure remains intact with a daily candle close below the $79 mark needed to indicate a change in structure.

Alternatively, rejection of the 100-day MA and a potential return of some US dollar strength could see us push lower back toward the 50-day MA.

IG client sentiment data: Mixed

IGCS shows retail traders are currently Long on Crude Oil, with 61% of traders currently holding long positions. At DailyFX we typically take a contrarian view to crowd sentiment, and the fact that traders are long suggests that Crude Oil may continue to fall.

WTI crude oil daily chart – January 23, 2022

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This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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