WTI sell-off bottomed at crucial technical confluence area, destined for $60 on bullish fundamentals
|- WTI is under pressure within a complex technical picture.
- Oil is a two-sided coin on fundamentals with a keen focus on geopolitical developments over Venezuela risk.
- WTI is currently trading at $54.25bbls, down from a high of $55.96bbls but above the session lows of $53.46bbls.
Fundamentally, oil prices are on the backfoot from what appears to be a switch up in the sentiment surrounding the Venezuela risk following the U.S.'s extra sanctions aimed at starving the regime of cash and pressuring the President, Nicolas Maduro, to resign. He is facing an unprecedented challenge from opposition leader Juan Guaido and cooperation from various nations such as the UK, Sweeden, US, Canada and Spain.
In recent weeks, a growing number of international governments have come out in support of Guaido, condemning Maduro for an election held late last year which was marred by an opposition boycott and vote-rigging. What all this means is that the markets are banking on the idea that Maduro will be pushed out in a U.S. lead coup, replacing his dictatorship with a Western-friendly regime, which would be regarded as bearish for oil, at least for the near term, considering his nations is home to the world’s largest crude-oil reserves. The opposition leader, Juan Guaidó, who would likely replace Maduro is expected to contribute more oil to worldwide supplies.
A case for the upside
"Moving forward we expect the fundamentals will start to generate more positive momentum as OPEC+ cuts begin to show in US inventory data, which along with any improvement in risk sentiment, could be the catalyst needed to help see CTAs cover and send prices toward $60/bbl into the second quarter,"
analysts at TD Securities argued.
WTI levels
The techncial picture is quite complex. We have a bullish correcting channel and the price has so far been able to break above the 38.2% fibo of the Oct 2018 decline in oil prices circa 55.50. The price action is now entering a possible bullish C wave of another ABCD move that commenced at the end of January from 28th Jan swing low down at 51.41, targetting the 60 handle. There is also an inverse bullish head & shoulders and neckline that the price has so far been unable to break below around 53.20 with a confluence of the 100 4hr SMA. At this juncture, we have seen a 38.2% fibo reversion of the sell-off which makes sense considering the daily ATR was well overdone. A 50% retracement will open the 54.60s. However, to the downside, a break of the H&S neckline and confluence area opens risk to S2 and confluence with the 21-D SMA in the 52.60s.
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