Bearish outlook persists for WTI
WEST Texas Intermediate (WTI) crude oil prices have remained weak this year, down 18 per cent year-to-date at the time of writing.
After a brief spike in June to US$77 per barrel, attributed to US air strikes on Iran’s nuclear facilities raising fears of a blockage at a key crude output chokepoint, WTI oil prices have steadily trended lower to under US$60 per barrel currently.
Recent bearish price action was fuelled by a combination of Iraq restoring production and renewed optimism surrounding possible Ukraine peace negotiations.
WTI prices fell a further 2 per cent last Monday (Dec 8) after Iraq restored production at one of its oilfields, which accounts for 0.5 per cent of global oil supply.
Iraq had restored production at Lukoil’s West Qurna 2 oilfield, which produces around 460,000 barrels per day, after a leak on an export pipeline had slashed its output earlier, according to two Iraqi energy officials.
In addition, investors are closely monitoring the progress of Ukraine peace talks, which remain slow with disputes over security guarantees for Kyiv and the status of Russian-occupied territory still unresolved.
However, should any agreement be reached in the near term, Russian oil exports could increase and put downward pressure on oil prices, with the geopolitical risk premium fading.
From a technical perspective, WTI oil prices have remained bearish, trending lower within a downtrend channel since July. This is confluent with the 50-day simple moving average (SMA), a barometer for medium-term trend, which has held as a dynamic resistance level for prices since September.
In addition, the US$62 per barrel level has turned into a resistance from a previous support, following a breakdown at the beginning of October.
In terms of technical indicators, the Moving Average Convergence Divergence (MACD) momentum oscillator also displays weak momentum, with the MACD line remaining below the zero line since the end of July.
In conclusion, the bearish outlook for WTI oil prices is likely to persist in the near term, with weak technicals coupled with the recent developments of Iraq restoring production and a potential breakthrough in Ukraine peace talks.
The price is likely to extend its current downtrend and head towards a retest of the year-low US$56-per-barrel support level.
The writer is senior research analyst at Phillip Nova
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