Market news

18 October 2021

WTI dips to daily support, but right tail remains the fattest.

  • WTI falls on supposed profit-taking as it reaches towards the psychological $85 figure. 
  • Bears are trying to keep control but have run into daily support which is now critical. 
  • Supply vs demand plays out but the right tail remains the fattest.

The price of the West Texas Intermediate crude spot has morphed into a bearish trend on the lower time frames in New York following a sell-off from higher highs that were made just ahead of the North American open today. At the time of writing, WTI is trading at $81.93 and has fallen from a cycle higher of $83.85 to print a low of $81.90. 

A seven-year high was made in London trade which likely encouraged weaker hands to take profits in what has been a parabolic rally since Sep 30 and then Oct 7 following a retest of the 10 day-MAs. More on that below. There have been concerns that demand is outstripping supply as the global economic recovery from the pandemic continues. This has fuelled the demand and taken speculative positions longer while investors at the same time reduced shorts according to the latest weekly COT report. 

Global oil inventories falling 

Meanwhile, the fresh highs same on the back of the International Energy Agency last week saying that global oil inventories were falling by 0.7-million barrels per day. There has been a shortage of natural gas and coal in Europe and Asia which has encouraged fuel switching amid a higher call on supply from economies recovering from the pandemic. The price of oil was even climbing despite the weak economic data from China at the start of the week. China's Gross Domestic Product rose 4.9% in the third quarter, down from 7.9% in the prior period.

However, as analysts at TD Securities note, ''two-way risks remain elevated, but the right tail remains the fattest suggesting speculators will be happy to hold on to length in the short-term.''

The analysts also explained that the ''oil markets are also benefiting as delta-variant risks have proved benign while growing departure levels suggest air traffic will continue to support jet fuel demand across both APAC and the US. This supports a tight supply-demand outlook that is particularly fueling upside momentum in Brent crude and heating oil, which can be exacerbated by up to 1 million bpd of incremental winter demand due to natural gas switching for crude and fuel oils. This informs our long-short heating oil-gasoline trade.''

WTI technical analysis

From a technical perspective, the price has been bid ever since the test of the 10-day moving averages:

As illustrated, there has been a series of restest of support and this could well just be another one of those. If that is the case, then there are still blue skies for the price to come with the $85 psychological figure in close range. 

Market Focus

Material posted here is solely for information purposes and reliance on this may lead to losses. Past performances are not a reliable indicator of future results. Please read our full disclaimer.

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