WTI crude oil breaks 50 barrier

Crude oil prices are on track to rise for the seventh consecutive day. For the first time since June, a barrel of oil in the US costs more than $50 again. From around $44.50 a barrel towards the end of last month to today’s current high of $50.50, WTI has thus risen a solid $6 or in percentage terms more than 13%. While some would argue that the buying may be a little overdone, there is still no end in sight for the current bullish run. Speculators have been buying every short term dip, a strategy that has evidently been working very well so far. This trend could well continue for some yet as after all crude oil’s fundamental outlook continues to improve: as well as the planned OPEC oil output cut, we have seen surprise inventory destocking in the US for five straight weeks now. Consequently, US oil stocks have now fallen below 500 million barrels for the first time since January. In addition to the prospects of reduced supply, the outlook for oil demand appears to be healthy too, judging by this week’s key US economic data which have been mostly positive, with the key ISM manufacturing and services sector PMIs both coming in stronger than expected and unemployment claims unexpectedly falling last week to near a 43-year low. Buck-denominated oil prices are also showing resilience against the surging dollar, too, which is another bullish sign that not many people are talking about.

On top of all the fundamental factors, the recent breakout above key short-term resistance levels have probably encouraged momentum-based buying interest, too. WTI appears to be heading towards $50.90, a level which had been resistance in the past. If it manages to break above here then the top of the recent range at $51.65 could be the next bullish target to watch. I, however, think the rally could potentially go much further, obviously not in a straight line. A couple of very interesting levels that I would be watching are around $55 and then at $59.30/40. As can be seen on the chart, these are where several Fibonacci levels converge, which make them ideal profit-target areas for market participants who like myself use the Fibonacci tool in their analysis and trading. So there is the potential for WTI to climb to those levels and possibly find resistance there amid profit-taking. As things stand only a potential drop back below old resistances at $49.10 or $47.70 would invalidate our technical bullish view on WTI oil.

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