The crude oil price could be on the verge of an explosive break above $70 as a brewing storm approaches a major production hub. NYMEX West Texas Intermediate (WTI) crude oil futures are extending gains as the oil market braces for potential supply disruption.
Over the last week, the crude oilprice has recovered from the steep decline suffered earlier this month. This follows a 180-degree change in sentiment following the Chinese governments’ commitment to supporting ailing markets and a weakening US Dollar. Not to mention, market players had bearishly positioned themselves. As we noted last week, systematic traders had flipped from bullish to bearish. Furthermore, large speculators had considerably reduced their exposure to the crude oil price.
This was always likely to lead to short-covering on the first signs of a turnaround, and this was when Crude surged 5.5% last week. And with the shorts already feeling the pinch, the stage is set for crude to increase their discomfort.
WTI Crude Forecast
As our previous report detailed, crude oil found considerable support at the 200-day moving average at $61.79. Since testing the indicator, the price has added $6.70 (+10.70%) and cleared the 100 DMA at $67.01. However, the price is currently tussling with the 50 DMA at $68.76, although this should soon succumb.
A descending trend line at $71.15 becomes the first resistance level on clearance of the 50 DMA. And if this falls, the $76.98 high from July is a real possibility. However, what happens next depends on whether the storm finds its way to the Mexican Gulf. And for obvious reasons, we hope it doesn’t make landfall. Nonetheless, traders should be prepared for that eventuality.
If supply disruptions are averted over the weekend, the crude oil price will likely retreat on Sunday night. The first support level then becomes the 100 DMA at $67.01, and following that, the 200 DMA at $61.79. However, even the most positive outcomes are unlikely to push the price below $61.79, and I expect any dip to encounter buying. In saying that, should the price lose the support of the 200-day, the outlook turns sharply negative.
Crude Pil Price Chart (Daily)
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