Risks to Oil Production Support West Texas Intermediate Crude Prices

Key Takeaways

• Positive developments in banking sector pressuring U.S. dollar
• Strengthening demand in China supporting oil prices
• Halt in northern exports from Iraq’s Kurdistan region affecting production

Overview

U.S. benchmark West Texas Intermediate crude oil futures are testing a two-week high on Tuesday in limited trading.  Underpinning prices are positive developments in the banking crisis, which are pressuring the U.S. Dollar, and indications of strengthening demand in China.

On Monday, posted its biggest rise in more than four months after Turkey stopped pumping crude from Kurdistan via a pipeline following an arbitration decision that confirmed Baghdad’s consent was needed to ship the oil.

At 09:54 GMT, June WTI crude oil is trading $73.39, up $0.46 or +0.63%. On Monday, the United States Oil Fund ETF (USO) settled at $64.15, up $3.19 or +5.23%.

Bullish Tone Fueled by Production Risks

Several factors are impacting the oil market on Tuesday. The recent acquisition of deposits and loans of failed Silicon Valley Bank by First Citizens BancShares Inc has sparked optimism about the banking sector’s condition, which could have positive implications for risk sentiment.

Additionally, China’s expected 6.2% rise in crude oil imports in 2023, as forecast by a research unit of China National Petroleum Corp, is likely to continue supporting oil prices. Positive manufacturing and services PMI data from China could further improve the demand outlook.

There are also potential risks to oil production. The halt in northern exports from Iraq’s semi-autonomous Kurdistan region has forced firms operating there to cease output or divert crude to storage, where capacity is limited.

This has resulted in the halting of around 450,000 barrels per day of crude exports, accounting for half a percent of global oil supply.  This news caused WTI crude oil to rise over $3 per barrel on Monday.

Daily June WTI Crude Oil Technical Analysis

The main trend is down according to the daily swing chart. However, momentum is trending higher. A trade through $80.97 will change the main trend to up. A move through $64.58 will signal a resumption of the downtrend.

The minor trend is up. This is controlling the momentum. A trade through $67.20 will change the minor trend to down.

The main range is $56.09 to $100.48. The market is currently testing its retracement zone at $73.05 to $78.29. Inside this zone is potential resistance at $74.71.

On the downside, the nearest support is a short-term 50% level at $71.08.

Daily June WTI Crude Oil Technical Forecast

Trader reaction to the main Fibonacci level at $73.05 is likely to determine the direction of the June WTI crude oil market on Tuesday.

Bullish Scenario

A sustained move over $73.05 will indicate the presence of buyers. This could trigger a surge into $74.71. Overtaking this level could trigger acceleration into $78.29.

Bearish Scenario

A sustained move under $73.05 will signal the presence of sellers. The first downside target is $71.08, followed by a support cluster at $68.76 -$68.19.