WTI Crude Oil price

3 reasons why crude oil price is roaring back; key resistance nears

Crude oil price rose for the fourth-straight day as the market continued to price-in a recovery of the world economy. Brent crude rose by more than 3.8% to $28.26 while West Texas Intermediate (WTI) rose by 6% to $21. Let us look at the main reasons why the price of crude oil is soaring.

Hopes of a global recovery

As all commodities, the price of crude oil depends on supply and demand. With the world facing higher supplies, the market is now focusing on demand. Fortunately, there are signs that more countries will start to ease restrictions. In the United States, a number of states have started to allow some businesses to operate.

Similarly, in Europe, countries like Germany, Spain, and Italy have started to gradually reopen. In New Zealand, the country has eased restrictions because the number of new cases has plummeted. The same trend is happening in South Africa and China.

Therefore, investors believe that demand will rise as more people start going to work. Still, it will take a longer period for demand to recover because international travel will take months before it returns.

Crude oil supply cuts taking effect

The market is also optimistic that the OPEC+ deal that was signed in April has kicked in. The deal said that OPEC and non-OPEC members would slash about 9.7 million barrels. Since then, there have been signs that cuts will be significantly higher. For one, Norway, the second-biggest European oil producer has said that it will slash about 13% of its daily oil production. In the United States, many countries are in trouble. For example, Chesapeake Energy has said that it will file for bankruptcy production.

At the same time, data from Baker Hughes has showed that American producers have slashed their well count at the fastest rate on record. There are now slightly above 300 wells, which is significantly lower than the 600+ at the beginning of the year.

Crude oil inventories falling

Another reason why crude oil price is rising is that build up, especially in the United States has started to fall. According to the EIA, the inventories have declined from a peak of 19.24 million in early April to 8.99 million a week ago. Analysts are now expecting the inventories to fall to 8.125 million. A decline in inventories is usually a positive thing for crude oil prices.

Brent crude oil price forecast

On the daily chart, we see that the Brent crude oil has been making a series of higher highs since April 22 when it was trading at 16.00. The price has moved above the 25-day EMA and is now slowly approaching the 23.6% Fibonacci retracement at 29.00. Therefore, the key point to watch will be 29.00. A move above this resistance level, will mean that bulls are in control. As a result, they will attempt to test the 38.2% retracement level at 37.00.

On the other hand, a move below the support of 20 will invalidate this thesis because it will signal that there are still sellers in the market. This price is an important psychological level.

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Crude oil price outlook

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