WTI flashes 3-month high of $56.10 amid supply cuts, sanctions and trade optimism

WTI rose to a fresh three-month high of $56.10 on early Monday. The energy benchmark has off-late been supported by expectations that a trade deal between the US and China could increase Crude demand from the world’s largest industrial player, i.e. China. Adding to that, OPEC+ supply cuts and the US sanctions on Iran and Venezuela has also contributed to the upside.

While early last-week reports from Beijing weren’t quite positive, end of two-day negotiations between the US and China policymakers delivered upbeat statements. Both the sides agreed to extend the talks in Washington whereas the US President Donald Trump tweeted in favor of stretching the deadline from March 01 after previously signaling a 60-day window to fresh tariffs after the deadline ends. With this, chances are high that the world’s two largest economies may soon come to a trade pact and can offset challenges to the global economy witnessed recently.

On the supply side, increasing US output is likely finding it hard to challenge the production cut agreed by the OPEC-led alliance. The Organization of Petroleum Exporting Countries (OPEC) and Russia have agreed to cut the group production by 1.2 million barrels per day (bpd) starting from January in order to counter the supply glut situation prevailing then.

The US sanctions on OPEC members like Iran and Venezuela were also to count for deteriorating supplies. As per recent news from Reuters, Russian lender Gazprombank has decided to freeze the accounts of Venezuelan state oil company PDVSA and halted transactions with the firm to reduce the risk of the bank falling under U.S. sanctions. 

The PDVSA was earlier quoted diverting their clients to use Russian bank for the transaction in order to avoid hassles from the US sanctions. Hence, denial from a Russian bank could end up creating more hardships for President Nicolás Maduro when western leaders have already chosen opposition leader Juan Guaidó as a true leader.

WTI Technical Analysis

Given the WTI’s ability to cross $55.55, chances of its additional rally to 100-day simple moving average (SMA) level of $56.95 while the mid-November high of $57.90 and $58.70 can challenge buyers then after.

Meanwhile, a dip beneath $55.55 may recall $55.00 and $54.60 with a weeklong upward sloping trend-line at $54.00 likely limiting further downside.