WTI eases back to $85.00 level after hitting fresh multi-year highs near $86.00

After hitting multi-year highs early on during the European trading session near the $86.00 per barrel level, front-month WTI futures have since backed off to trade around $85.00, though still hold onto gains of about 60 cents on the session. Market commentators have attributed geopolitical tensions as driving the latest upside in crude oil prices, after an attack by Yemen’s shia Houthi militia on the UAE earlier in the week ratched up tensions in the region. Following the drone and missile strikes that killed three people and triggered explosions in fuel trucks, the Houthis have been threatening to target further UAE facilities.

The latest increase in Middle Eastern tensions comes at a time when global crude oil markets are already looking a lot tighter than analysts had been expecting at the start of the year. A lower-than-expected hit to global demand from Omicron combined with the difficulties some smaller OPEC+ members have been having in lifting output led Goldman Sachs to announce a for oil (Brent) to hit $100 per barrel in H2 2022. The bank explained that the above factors had “kept the global oil market in a larger deficit than even our above consensus forecast”, a factor that has likely been driving growing premiums in various physical crude oil grades over future prices in recent weeks.

“If current geopolitical tensions continue and OPEC+ members can’t deliver on their 400,000 barrel per day increase, macros coupled with the strong technical outlook could see prices push toward the $100 mark” analysts at CMC Markets concluded. Indeed, the technicals for oil have been looking relentlessly bullish in recent weeks. Since the December 20 low at $66.11, WTI has rallied nearly $20.00 or close to 30%, after consistently printing higher highs followed by higher lows. Though WTI did print multi-year highs on Tuesday, it hasn’t yet been able to convincingly break above the 2021 highs. Was this to be the case and was WTI to surge above $86.00, the next level of resistance to target would be the January 2014 lows in the $91.50 area.