WTI Crude Bullish as Long as $115.68 Holds as Support

U.S. West Texas Intermediate crude oil futures spiked higher on Monday, reaching its highest level in 14 years, as U.S. and European officials discussed a Russian oil import ban and delays in the potential return of Iranian crude to global markets fueled tight supply fears.

At 10:38 GMT, April WTI crude oil futures are trading $123.42, up $7.74 or +6.69%. This is down from an intraday high of $130.50. On Friday, the United States Oil Fund ETF (USO) settled at $79.38, up $4.85 or +6.51%.

The main catalyst behind the move was the news that the United States and European allies are exploring banning imports of Russian oil, while the White House coordinated with key Congressional committees moving forward with their own ban.

Additional pressure came from reports that talks to revive Iran’s 2015 nuclear deal with world powers were mired in uncertainty, according to Reuters.

The gap opening was fueled by overaggressive speculators taking advantage of low volume. The intraday setback is an indication that despite the potentially bullish developments over the weekend, professionals are concerned about excessive prices and that they may be getting ahead of the fundamentals.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through the intraday high at $130.50 will signal a resumption of the uptrend.

A trade through $87.46 will change the main trend to down. This is highly unlikely, but due to the prolonged move in terms of price and time, the market is in a position to post a potentially bearish closing price reversal top.

The chart pattern won’t change the main trend to down, but it will indicate the selling is greater than the buying at currently price levels. In layman’s terms, it means the market is overpriced given the current fundamentals.

Short-Term Outlook

The direction of the April WTI crude oil market on Monday is likely to be determined by how investors react to the gap on the daily/weekly chart at $116.57 to $121.33.

A sustained move over the gap will indicate strong buying. Overtaking the intraday high at $130.50 could trigger an acceleration to the upside with the long-term Fibonacci level at $136.92 the next likely target.

A trade under $121.33 will be the first sign that traders are trying to fill the gap. It basically indicates a small shift in momentum to down. If the selling pressure gets stronger than look for it to possibly extend into $116.57, filling the price gap. Since the main trend is up, buyers could come in once the gap is filled.

If the selling pressure continues then look for a move into the series of 50% levels at $111.45 to $108.90.

Side Notes

Even bullish traders are concerned about killing the rally by jumping too far ahead of the fundamentals. So small short-term retracements are likely to take place in an effort to shake out some of the weaker longs.

A higher-high, lower-close on the daily chart will form a bull trap.

On a side note, a close under $115.68 will form a potentially bearish closing price reversal top. This won’t change the trend but it could trigger the start of a 2 to 3 pullback.