Bullish outlook for WTI
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WEST Texas Intermediate (WTI) crude oil prices have declined over 20 per cent from their highest level of US$95/barrel in September 2023, despite the prospect of ongoing production curbs by Opec. However, there are some bullish glimmers in sight for the commodity that has been under pressure for months.
Firstly, following the latest commentary from the Federal Reserve in mid-December, the market is anticipating interest rate cuts to arrive as soon as March. The dovish sentiment has lifted WTI since the last Fed meeting as a weakened US dollar made oil, which is USD-denominated, more attractive to buyers.
Secondly, China’s factory activity expanded at a faster-than-expected pace in December 2023. The Caixin Manufacturing Purchasing Managers Index (PMI) grew 50.8 in December, beating consensus of 50.4 and improving slightly from the 50.7 reading recorded in November, a month before. It remains in expansion for a second consecutive month, raising demand prospects for energy in the world’s second-largest economy.
Thirdly, oil prices rose as US forces struck back against Houthi fighters in the Red Sea with the conflict showing little signs of de-escalation. Fears of a wider conflict could disrupt crucial waterways for the transportation of oil supplies in the Gulf.
From a technical perspective, several bullish signals are present for WTI crude oil.
Firstly, it has completed a five-leg bearish Elliot-wave price structure within the main downtrend channel. The last leg of the sell-down coincided with a key triple bottom support level at US$67.50/barrel and the downtrend channel support.
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Secondly, the price has rebounded after mid-December, with a bullish divergence signal, as the Moving Average Convergence Divergence technical indicator printed a double-bottom pattern while oil prices made a lower low to complete the downtrend.
Thirdly, the price held a breakout of the recent resistance level at US$72.50/barrel as support, which provides another bullish signal with a higher low being formed.
Moving forward, WTI is likely to gather additional momentum to break out of the current downtrend channel and retest the swing high of US$80/barrel formed in November 2023.
The writer is research analyst at Phillip Securities Research
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