WTI likely to face pullback after recent rebound

WEST Texas Intermediate (WTI) crude prices have staged a rebound since Apr 17, after a pullback close to US$80 per barrel following the initial two-week ceasefire between the US and Iran announced on Apr 8. WTI crude prices recovered as diplomatic efforts in the Islamabad talks failed to produce an agreement, leaving the crucial Strait of Hormuz waterway mostly shut and the US keeping its blockade of Iranian ports.

Beyond geopolitics, macro factors are also shaping the near-term outlook. On the demand side, global growth expectations remain mixed. While resilience in the US economy continues to underpin oil consumption, concerns over slower growth in China and parts of Europe have capped upside momentum. At the same time, elevated interest rates and tighter financial conditions continue to weigh on demand expectations, limiting the extent of any sustained rally.

From a technical perspective, WTI oil price broke down a short-term upward support line at US$97 per barrel on Apr 14, after forming a double top above US$117 per barrel earlier in the month. The price continued to pull back before finding support at US$84 per barrel on Apr 17, confluent with the 50-day simple moving average (SMA). Since then, the price has staged a rebound and is currently retesting the US$98 per barrel level, which is the 20-day SMA. The price is likely to meet resistance at the US$103 per barrel level, which corresponds with a swing high resistance formed on Apr 13. This level is aligned with a 61.8 per cent Fibonacci retracement level at US$103.47 per barrel, using the swing low of US$80.56 formed on Apr 17 and the swing high of US$117.63 per barrel formed on Apr 7.

In summary, WTI crude oil prices are likely to face resistance at the US$103 per barrel level following the rebound from US$80 per barrel. An interim deal between Iran and the US to reopen the Strait of Hormuz in exchange for an end to the naval blockade, while postponing more complex nuclear programme negotiations, would support a pullback in WTI crude oil price.

The writer is senior research analyst at Phillip Securities Research