Time for a small pullback before higher price tags?

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West Texas Intermediate crude oil has increased nearly 20% since the start of 2024 and is currently trading near $86.50 per barrel. The precarious situation in the Red Sea, production cuts by OPEC (and its allies), and the inability of the United States to bring more production online fast enough have greatly contributed to the rising oil prices in the past four months. Going forward, it is unlikely that the geopolitical issues in the Middle East will improve anytime soon, especially following a severe escalation of tensions between Israel and Iran earlier this week when Israel killed two Iranian generals by airstrike in Damascus, Syria (not to mention constant failures in peace negotiations between Hamas and Israel, and Israel’s plans to continue military operations in Gaza). These actions will likely provoke retaliation from Iran in the form of more attacks on Israel through its proxies. As these relationships seem to have entered a spiral of reciprocating aggression, the odds of a huge war spillover continue to grow, which has enormous implications for this oil-rich producing region and the oil market itself.

On the subject of technicals, the daily and weekly time frames are bullish. However, the USOIL broke above the ascending channel on Tuesday, and the RSI reached overbought territory on the daily timeframe. Besides that, the price also deviated too far from its 20-day and 50-day SMAs, which increases the chances of a short-term pullback in the price of oil. Nonetheless, the probability of oil reaching $90 per barrel in the coming weeks continues to rise.

Illustration 1.01

Illustration 1.01 displays the upward-sloping channel on USOIL’s daily chart. The yellow arrow indicates a breakout above the channel.

Illustration 1.02

The chart above illustrates simple support/resistance levels derived from past peaks and troughs. Alternative support levels lay at $85.85, $83.56, and $79.72.

Technical analysis
Daily time frame = Bullish
Weekly time frame = Bullish

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DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not be a basis for taking any trade action by an individual investor or any other entity. Your own due diligence is highly advised before entering a trade.