Crude Oil Rally Running Low on Gas?

Crude oil’s break above $100 has been driven by escalating Middle East supply risks, including disruptions through the Strait of Hormuz, attacks on tankers and Saudi energy infrastructure, and reduced OPEC output.

 

WTI Crude Oil Rally Stalls as Momentum Fades

The rally has since lost momentum as much of the immediate risk has been priced in and markets adapt to prolonged disruption. Physical markets remain tight, so another supply shock could quickly revive the rally. But without fresh escalation, the failure to extend above resistance suggests the near-term risk/reward is becoming less favourable for oil bulls.

Still, that does not make this a slam-dunk short for bears. Geopolitics sent prices this high and could just as easily send them above 108 if things escalate once more. But recent price action should at least serve as a warning to bulls considering chasing this move.

 

WTI Rally Stalls Beneath Resistance as Momentum Fades

The daily chart (left) shows a strong rally into Thursday’s high, before bearish volatility kicked in beneath the 105.21 high and monthly R3 pivot. The fact that prices reached R3 before the halfway point of the month is a cause for concern for bulls, as it suggests an overextended market. The shooting star candle and overbought RSIs also add to that case.

Source: NYMEX, TradingView

WTI Bears Eye a Counter-Trend Move Below 104

The 4-hour chart (right) shows a bearish engulfing candle formed before prices fell closer towards 100. Prices are drifting higher, so perhaps bulls will have another crack at the highs. But unless a fresh bullish catalyst arrives, I remain suspicious of oil’s ability to break immediately higher. Bears could therefore seek evidence of a false break or lower high below 104 as part of a near-term counter-trend move.

Bearish targets could include 100, the 98.48 swing low and the weekly pivot point near 98. Also note the monthly R2 pivot near the 96 handle and 10-day EMA. These support levels could also tempt bulls back to the table.

Crude Oil Positioning Remains Supportive Despite Rising Shorts

It is also worth remembering that net-long exposure has been tracking prices higher, with longs being added and shorts falling in recent weeks. That said, there was a slight uptick in shorts among large speculators last week. But this chart still shows that higher-timeframe support remains in place, and we are unlikely to see a sharp selloff without a drastic change in geopolitical circumstances.

Source: COT (CFTC), LSEG