Will Crude Hit $120 Again?

U.S. West Texas Intermediate crude oil futures are inching higher on Friday, putting it in a position to finish higher for the week, as a planned European Union ban on Russian oil balanced demand concerns over slowing global economic growth.

The price action this week suggests a stalemate between bullish traders hoping a European Union embargo of Russian crude oil would tighten supply and bearish traders worried that higher interest rates would choke economic growth and consequently, crude oil demand.

Russian Oil Embargo Negotiations Stall

EU foreign ministers failed earlier in the week in their effort to pressure Hungary to lift its veto of a proposed oil embargo on Russia, with Lithuania saying the bloc was being “held hostage by one member state”, Reuters reported.

The ban on crude imports proposed by the European Commission in early May would be its harshest sanction yet in response to Moscow’s Feb. 24 invasion of Ukraine and includes carve-outs for EU states most dependent on Russian oil, Reuters added.

IMF Urges Asia to be Mindful of Spillover Risks from Tightening

Asian economies must be mindful of spillover risks as a decade of unconventional easing policies by major central banks is unwound faster than expected, International Monetary Fund (IMF) Deputy Managing Director Kenji Okamura said.

The risks applied particularly to the most vulnerable economies, said Okamura.

Asian economies faced a choice between supporting growth with more stimulus and withdrawing it to stabilize debt and inflation, he said.

Weekly Technical Analysis

Weekly July WTI Crude Oil

Trend Indicator Analysis        

The main trend is up according to the weekly swing chart. A trade through $116.43 will signal a resumption of the uptrend. A move through $61.32 will change the main trend to down. This is highly unlikely, however.

The minor trend is also up. The uptrend was reaffirmed earlier in the week when buyers took out a pair of minor tops at $109.77 and $110.07. A trade through $96.93 will change the minor trend to down. This will shift momentum to the downside.

Retracement Level Analysis

The first minor range is $116.43 to $88.53. The market is currently trading on the strong side of its retracement zone at $105.77 to $102.48, making it support.  

The second minor range is $88.53 to $110.07. Its retracement zone at $99.30 to $96.76 is additional support.

If $96.76 fails as support then we could see an acceleration to the downside with the retracement zone at $88.88 to $82.37 the next target.

The main range is $34.55 to $116.43. If $82.37 fails as support then look for the selling to extend into its retracement zone at $75.49 to $65.83.

Weekly Technical Forecast

The direction of the June WTI crude oil market the week-ending May 27 will be determined by trader reaction to $105.77.

Bullish Scenario

A sustained move over $105.77 will indicate the presence of buyers. If this move creates enough upside momentum then look for a retest of this week’s high at $113.20. This is a potential trigger point for an acceleration into the contract high at $116.43.

Bearish Scenario

A sustained move under $105.77 will signal the presence of sellers. If this move creates enough downside momentum then look for a quick test of the 50% level at $102.48, followed by another retracement zone at $99.30 to $96.76.

A failure to hold $96.76 will indicate the selling pressure is getting stronger. This could trigger a break into a support cluster at $94.47, $92.15 and $88.53.

Taking out the minor bottom at $88.53 could trigger an acceleration into the Fibonacci level at $82.37.  

Short-Term Outlook

Technically speaking, traders are going to have to continue buying the dips to sustain the bullish ‘higher-high, higher-low’ chart pattern.

While the chart pattern suggests sellers are going to have to deal with labored pressure due to the series of potential support levels from $105.77 to $96.76, buyers are pointed in the direction of least resistance with $116.43 the next major upside target, followed by $121.17. Bullish traders, however, are going to need a catalyst or two to move prices sharply higher.

The first catalyst that could spark a breakout to the upside will be the announcement of a ban on Russian oil products. This would tighten supply.

The second catalyst that could trigger a breakout rally will be the lifting of COVID-related lockdowns in China. The move would lead to a surge in demand for crude oil, also a bullish development.

The combination of tight supply and increasing demand could spike prices through $116.43 and into $121.17.

Further strength will be generated by increasing demand for U.S. gasoline from Europe and domestically. In the U.S., prices are at record highs and we haven’t even started the summer driving season yet.

In summary, the way of least resistance is up, but traders need a catalyst or two to take advantage of the bullish set-up.