Oil and Natural Gas Technical Analysis: US Sanctions Propel Breakouts

Brent crude oil (BCO) surged above $80 per barrel amid concerns over potential supply disruptions due to sanctions on Russian shipping. The expanded sanctions targeted major Russian oil producers and 183 vessels, heightening fears of constrained supply. Similarly, WTI crude oil (CL) rallied, breaking the key resistance level of around $78.

Meanwhile, US crude inventories fell by 2.6 million barrels for the week ending January 10, 2024, marking the fifth consecutive week of declines, as highlighted in the chart below. This exceeded market expectations, highlighting tightening supply dynamics. The ongoing decline in US crude inventories underscores persistent supply pressures. The chart below shows eleven draws in the past eighteen weeks, which reflects constrained supply amid strong global energy demand.

However, the EIA projects oil prices to face downward pressure over the next two years due to rising production. By 2025, global production is expected to exceed demand, with production forecasted at 104.4 million barrels per day compared to demand at 104.1 million barrels per day.

Moreover, energy prices remain a critical factor in inflation trends. The chart below shows that the energy CPI’s rise ahead of the headline CPI in 2021 and its subsequent fall contributed to inflation’s decline. However, near-term supply concerns could push oil prices higher, impacting inflation in the short run. The interplay between sanctions, inventory trends, and long-term production forecasts will shape the oil market, with potential price volatility influencing broader economic stability.

WTI Crude Oil (CL) Technical Analysis

Oil Daily Chart – Breakout

The daily chart for WTI crude oil shows that the price has broken the key area. The release of US inflation data has supported the strength in oil prices as the US dollar weakens. Despite overbought conditions, the price breaks the key resistance level at $78 and is trading near the August 2024 high.

The rebound from the $67 support level indicates positive momentum and suggests higher prices in the short term.

Oil 4-Hour Chart – Upward Momentum

The 4-hour chart for WTI oil shows that the price remains strong above $78.40. The multiple bottoms around $66.70 indicate strong positive momentum. Additionally, the RSI has rebounded from the mid-level, suggesting that the price may continue to rise further.

Brent Oil (BCO) Technical Analysis

Brent Daily – Breakout

The daily chart for Brent oil shows that the price has broken above $81, which has been the resistance of the descending trendline. The rebound from the orange support level indicates bullish momentum and the potential for higher prices. However, the overbought conditions, as indicated by the RSI, suggest that the price may correct lower in the near term.

Brent 4-Hour Chart – Ascending Channel

The 4-hour chart shows that Brent oil has broken out of the ascending broadening wedge and entered the upper region of the ascending channel. The strong resistance at $81.75 suggests that the price may consolidate further before making its next move.

Natural Gas (NG) Technical Analysis

Natural Gas Daily Chart – Cup and Handle Pattern

The daily natural gas (NG) chart shows that prices remain elevated due to seasonal factors. The breakout from the cup-and-handle pattern and the consolidation within the ascending broadening wedge indicate strong volatility. This volatility is driven by increased demand associated with seasonal trends. Natural gas prices face strong resistance in the $4.60 to $4.70 range.

Natural Gas 4-Hour Chart –Ascending Channel

The 4-hour natural gas chart shows that the price is trading within an ascending channel pattern. The formation of an ascending broadening wedge within the channel highlights significant volatility. The price has rebounded from strong support at $3.35, indicating robust price action and the potential for a continued rally toward the $4.60 to $4.70 range.