Crude oil extends gains on Ukraine, Libya concerns

Both the major crude oil contracts are higher as we head into the weekend. Brent has risen on the back of continued supply outages in Libya and as geopolitical tensions remains high with US President Barack Obama urging Russia to stop "intimidating" Ukraine and reduce its troops around its border. The US oil contract remains supported by continued destocking at Cushing, where oil inventories fell by a further 1.3 million barrels last week, and as distillate stocks remain well below the average for this time of the year due to the elevated demand for heating oil as a result of the cold weather in the US. Nevertheless, overall US crude oil stocks, which have risen for a tenth straight week to reach 382.5 million barrels, remain near the upper limit for this time of the year. What’s more, the global supply of oil is only likely to continue expanding while demand is expected to grow relatively moderately over the coming months. In the more near-term future, demand from refineries should fall as they process less oil while maintenance work is carried out.

Thus from a fundamental point of view, it is difficult to see how this rally can be sustained. However the technicals suggest more gains could be on the way.

WTI has broken above another resistance level, namely $101.00 and is currently trading at just shy of $102.00. The near-term trend therefore remains bullish for US oil. The next potential resistance levels could be around the 61.8 and 78.6 percent Fibonacci retracement points of the last downswing, at $102.20 and $103.50 respectively. Meanwhile the old resistance level of $101.00 could now turn into support. Additional support is seen around $101.45, a level which marks the 200-day average and was previously resistance.

Brent is currently above the $108.00 mark, which was previously support and resistance. This is where the 38.2% Fibonacci retracement level of the down move from the start of month meets the 50-day moving average. The way has potentially been cleared for a move towards the 200-day average and resistance around $108.50/109.00. Meanwhile the downside is supported by a long-term bullish trend line which has been in place since mid-2010. This comes in around $106.50, about $1 ahead of the 2014 low of $105.45.