April WTI Strengthens Over $111.45, Weakens Under $110.60

U.S. West Texas Intermediate crude oil futures are trading at an 11-year high on Thursday, extending the surge since Russia invaded Ukraine seven days ago. The catalysts behind the rally are expectations that the market will remain undersupplied for months to come following the imposition of harsh sanctions on Moscow. Additionally, a flood of divestment from Russian oil assets by major companies has sent users scrambling to find fuel alternatives.

At 08:33 GMT, April WTI crude oil futures are trading $115.46, up $4.86 or +4.39%. On Wednesday, the United States Oil Fund ETF (USO) settled at $75.42, up $3.60 or +5.01%.

While the energy sector was not specifically targeted, the sanctions have hampered exporting capabilities from Russia, whose oil exports account for about 8% of global supply, or 4 million to 5 million barrels per day, more than any nation other than Saudi Arabia, Reuters said.

Adding fuel to the fire, the White House on Wednesday said it was “very open” to the possibility of targeting Russian oil-and-gas with sanctions. That could drive prices even higher, but some traders feel that the market has already priced-in this possibility.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through the intraday high at $116.57 will signal a resumption of the uptrend.

Earlier in the session, the uptrend was reaffirmed when buyers took out the May 2011 main top at $114.09.

The market has also entered a major long-term retracement zone at $111.45 to $136.92.

On the downside, the support is the long-term 50% level at $111.45. The minor 50% level at $103.32 is another potential support level.

The short-term range is $87.46 to $116.57. Its retracement zone at $102.02 to $98.58 is additional support. The minor and short-term retracement zones will move up as the market moves higher.

Short-Term Outlook

April WTI crude oil is trading inside a long-term retracement zone. Normally, we’d be looking for counter-trend selling pressure, but with upside momentum so strong at this time, I don’t think sellers will be shorting, but they could be taking profits by lightening up on the long-side.

Furthermore, the market is only $3.00 from the 50% level at $111.45. This means the top of the zone is over $20 away, giving bullish traders plenty of incentive to continue the rally.

There is another scenario that could weaken prices. That is high prices. There’s an old adage at the Chicago Mercantile Exchange in Chicago that goes, “The only thing that cures high prices is high prices.” It means when prices get too high, users stop buying. This spooks weak longs into taking profits. This in turn fuels a sell-off that is not designed to change the trend to down, but weaken prices enough to attract new buyers.

Trader reaction to $110.60 will set the tone today. Holding above this price will mean that buyers are still present, but a close under this level will produce a potentially bearish closing price reversal top. This won’t change the trend, but it will indicate the selling is greater than the buying at current price levels.