The Crude oil price could be set to break out on the upside as the after-effects of Hurricane Ida trumps the fears of a stronger dollar and a mutant virus. Despite risk assets starting to show signs of stress, Nymex West Texas Intermediate (WTI) oil futures continue to grind sideways between $67.50 and $70.00. This confirms that the overriding theme for crude oil traders is that almost 80% of the Gulf of Mexico’s production remains offline.
Over the last week or so, risk assets have started to price in numerous potentially harmful developments. Firstly the repercussions of the near-collapse of Chinese construction giant Evergrande has led to comparisons to the fall of Lehman Brother s in 2008. This alone should be enough to send shockwaves across markets. Furthermore, the vaccine-resistant Wu Covid strain adds to the uncertainties. As a result, the US Dollar is starting to see a safe-haven bid.
In theory, all of the above should exert downside pressure on the crudeoil price. However, the signs are pointing to an upside extension.
WTI Price Forecast
The daily chart shows a clear descending trend line from the July high, visible at $69.78. This is the immediate resistance level, and successful clearance would constitute a bullish breakout. In that event, an extension towards the 1st of August high of $74.00 looks probable.
Furthermore, the bullish view is supported by the fact the price is above the 50-day moving average at $68.85 and the 100-day at $67.32. As long as the crude oil price is above the 100 DMA, a trend break is likely. However, if WTI slips below the 100 DMA, it would suggest the trend resistance has held, and the breakout failed. In this instance, the bullish thesis is parked until a clearer picture emerges.
Crude Oil Price Chart (Daily)
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