WTI oil advances to the 100-day MA; breakout or retracement imminent?

WTI fundamental outlook

Crude oil enjoyed a bounce following the European open this morning buoyed by a weaker dollar. The Asian session saw WTI struggle in the absence of Chinese traders as markets remain mixed around a potential demand surge following China’s reopening.

Oil prices continue to benefit from a softer USD of late as markets come to terms with the potential rate hikes ahead. Before the Fed blackout period began last week, we heard from a host of Fed policymakers favoring further rate hikes while highlighting the dangers of persistently high inflation. At present markets seem to be taking the rhetoric of Fed policymakers with a pinch of salt as the USD continues to weaken as markets assess the probability and size of further rate hikes.

Traders continue to assess the impact of the Russian Oil ban with the US Treasury announcing on Friday that a review on the price cap will only happen in March together with its G-7 counterparts. The delay will allow for the full impact to be felt and the G-7 nations to respond accordingly with the possibility of a cap on oil products from Russia still on the table.

China remains a key driver for oil prices as markets hope that the reopening will spark a fresh surge in demand. This initial optimism was responsible for the recent rally back above the $80 a barrel a mark. The week ahead promises to be interesting as China celebrates the Lunar New Year the question will be… Can WTI sustain its upside momentum in the absence of Chinese traders and data?

From a technical perspective, WTI is on course for its third consecutive day of gains since retesting the trendline and bouncing of the 50-day MA. Price action continues to print higher highs and higher lows since printing its YTD low on December 9 while a new higher high seems on the cards at present. A daily candle close above the 100-day MA at $82.15 opens up the possibility of a run higher toward the $85 a barrel a mark. Bullish structure remains intact with a daily candle close below the $79 mark needed to indicate a change in structure.

Alternatively, rejection of the 100-day MA and a potential return of some US dollar strength could see us push lower back toward the 50-day MA.

IG client sentiment data: Mixed

IGCS shows retail traders are currently Long on Crude Oil, with 61% of traders currently holding long positions. At DailyFX we typically take a contrarian view to crowd sentiment, and the fact that traders are long suggests that Crude Oil may continue to fall.

WTI crude oil daily chart – January 23, 2022

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