WTI technical analysis to start of October

Published on

October 7, 2018


Article by

Hermes Pérez

WTI crude has registered a clear upward trend since August 15, 2018 and reached US $ 75.47 per barrel on October 1, 2018, its highest value since November 25, 2014.

Among the elements that explain the aforementioned rise are the expectations of the impact of U.S. sanctions on Iranian oil, the colossal collapse of production in Venezuela and the purchases made by hedge funds in financial markets, among others.

In this regard, exports from Iran have declined 30% as a result of the measures imposed from Washington. For its part, Venezuela has stopped producing more than 1,650,000 million barrels a day in a period slightly longer than a year, an unprecedented fall in a country without a military conflict.

To the above has to be added the important purchases made by hedge fund managers that have accumulated a long net position of futures and options equivalent to about 850 million barrels, the largest since late July. According to some reports, there are increasing bets that Saudi Arabia and its allies will not be in the capacity to replace all the crude from the market when U.S. sanctions on Iran go into effect fully from November.

Hedge funds and other money managers increased their long position in the major petroleum contracts by another 50 million barrels in the week to Sept. 25. Portfolio managers have raised their combined net long position by a total of 196 million barrels over the last five weeks, according to exchange and regulatory data.

Bullish long positions now outnumber bearish short ones by a ratio of more than 12:1, and the imbalance is rapidly closing in on the record 14:1 back in April.

In this sense, everything seems to point out that investors in the financial markets anticipate a shortage of light sweet crude as U.S. sanctions on Iran go into effect on Nov. 4. This, despite claims made by Saudi Arabia, Russia and the United States that the supply of crude oil will remain at adequate levels.

According to Bollinger Bands, the price has a strong support level of US $ 70.75 and a resistance level of US $ 75, which was exceeded by the close of October 1 (US $ 75.47).

The price of crude oil cut from below its 200-day moving average in mid-September, which was a clear signal of the strength of its upward trend. However, the wide gap between the price and its 200-day average at October 1, US $ 68.99 vs. USD $ 75.47 could anticipate an important correction in the short term.

In the same way, the Relative Strength Index (RSI) above 70 indicates that it is in the field of overbought, another sign of the possibility of a modification of the short-term trend. This, as a possible anticipation of the profit taking that the investors in the financial markets will make some time in the short term.

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