The Charge of the Light Crude Brigade

Saudi’s Arabia’s “purge” leads crude’s geopolitical surge but traders should watch out of technical indicator cannon fire.

Oil’s charge of the light crude brigade continued unabated overnight, with both Brent and WTI galloping 3.0% higher and even Natural Gas shaking of its multi-month lethargy, rising 3.50% in New York trading. Geopolitics continues to drive price surges, which is unsurprising when mainstream media use words such as “purge” to describe the situation in Saudi Arabia.

 

Saudi Arabia’s apparent purge aside, the rally comes against the backdrop of potential disruption of supplies in Iraqi Kurdistan, Libya and also forgotten in the noise, Venezuela. Venezuela appears to be nearing a default endgame at last with the country struggling with quality control issues of its already modest and declining exports. Much of Venezuela’s production is destined for U.S. refineries, and this should be supportive for WTI even if the Saudi Arabia situation calms down.

 

With an OPEC and Non-OPEC production cut extension seemingly a done deal and Nigeria indicating its support, all would seem rosy for oil’s short-term price momentum to continue. The original charge of the light brigade did not end well, however, and we continue to caution that the short-term technical indicators are now severely overbought on both contracts. Geopolitics can override these of course but like the original charge, the longer it went on, the uglier it became. In this case, crude could become vulnerable to an increasingly aggressive correction without some consolidation of the recent rallies.

 

Brent spot is trading unchanged at 64.25 this morning with initial resistance at the overnight high of 64.60. Its nearest long-term target at these levels remains the 69.00 regions. With oil running on vapours, support appears at 64.25 followed by a lot of clear air until the triple daily bottom at 60.00.

Brent Crude Daily

 

WTI spot is at 57.10, the overnight high at 57.40 being initial resistance, the bottom of a mid-2015 multimonth congestion zone that extends to 61.00 which is the next technical target. Support is at 55.50 followed by a series of multi-day lows around 53.60 and also today, the ascending trendline support that has held all pullbacks since the beginning of October. 53.60 is a critical support level with a break suggesting that the charge of the light crude brigade will be running into some severe cannon fire.

WTI Daily

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley is OANDA’s senior market analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV, Channel News Asia as well as in leading print publications including the New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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