WTI expected to face further downside pressure

WEST Texas Intermediate (WTI) crude oil prices have consolidated sideways since the high of nearly US$120 per barrel reached on Mar 9. Since May 20, WTI oil prices have softened and remained under US$100 per barrel after US President Donald Trump stated he had held off military actions planned against Iran at the request of Gulf states as negotiations were ongoing.

WTI oil prices continued to decline after the Memorial Day holiday on signs of progression in negotiations to extend the US-Iranian ceasefire and reopen the Strait of Hormuz. Trump had posted that a memorandum of understanding had largely been negotiated, subject to finalisation between the US, Iran and various other countries.

In addition, shipping traffic through the Strait of Hormuz had recently picked up from the near-standstill since the outbreak of conflict on Feb 28. Recent shipping data from May 25 showed that two liquefied natural gas tankers exited the Strait of Hormuz, bound for Pakistan and China, while a supertanker carrying Iraqi crude was also headed for China. These vessels are among a handful of supertankers exiting the Gulf in May via routes previously designated by Iran . This development puts downside pressure on oil prices with easing global supply tightness and deflation of the geopolitical risk premium.

From a technical perspective, WTI oil prices have exhibited signs of weakness lately, with lower highs continuing to form since the Mar 9 high near US$120 per barrel. Prices have traded below the 50-day simple moving average (SMA) since May 20, which had previously held as a key dynamic support during pullback phases on Apr 17 and May 6. This is a sign of fresh weakness in the medium-term price trend. At the time of writing, the price was also breaking below the consolidation wedge’s support at US$94 per barrel, signalling potential for continued downside momentum.

In summary, WTI oil prices are likely to face further downside pressure, driven by easing geopolitical risk premium and technical breakdowns on the chart. WTI oil prices could continue to weaken towards the US$84 per barrel level, the next key support level, coinciding with the 100-day SMA and the swing lows formed on Mar 23 and Apr 17.

The writer is senior research analyst at Phillip Securities Research