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I still believe that oil will go higher in the meantime, but am cognizant of potential breakdowns.
The West Texas Intermediate Crude Oil market went back and forth during a wild day on Wednesday as we continue to see volatility pick up. Because of this, the market is almost somewhat untradable, but not necessarily uninvestable. The market has been all over the place during the session which is a symptom of all of the noise that we see around the world.
There has been a bit of hope added to the market as the Russians were willing to step away from Kyiv, but the reality is that most Western observers do not believe that they are acting in good faith, rather they are stalling for time. Whether that is the case or not is an open question, but it is obvious that the market does not necessarily buy it, or oil would not have bounced during the day. The losses would have stuck, but as you can see, they clearly did not. This is a market that has been a bit overdone in both directions.
There are concerns about supply as the markets have been starved of it over the last couple of years. That being said, we also need to keep in mind that there is a multitude of crosscurrents that could cause problems in this market. The war in Ukraine has had a major outsized effect on price, but we also have to keep in mind that OPEC has shown no proclivity to increase production at this point. The markets also have to begin to question whether or not the potential increase of supply from Venezuela and Iran can make up the difference.
If we were to break down below the 50-day EMA, then it is likely that we will test the previous uptrend line that I have marked on the chart. At this point, it looks to me as if the market is trying to save itself. However, if we were to break down below that uptrend line, it could change quite a bit as far as momentum and longer-term trajectory is concerned. If that is the case, then we will almost certainly go looking towards the $90 level underneath. Expect volatility, and therefore you should be very cautious about your position sizing. I still believe that oil will go higher in the meantime, but am cognizant of potential breakdowns.
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