WTI: Is the war premium dormant?

Is the WTI between truce and supply gap?

After a series of volatility, WTI (West Texas Intermediate) has stabilized between 89.00 and 90.00. The successful blockade of the Strait of Hormuz and strains in the ceasefire between Israel and Lebanon have cut off millions of barrels of Middle Eastern output. The inconsistency between forecasting agencies is rising. OPEC or Organization of the Petroleum Exporting Countries has dropped its second quarter demand prediction by 500,000 barrels per day to 105.07 million barrels per day, specifying a momentary lapse. However, projections from the U.S. Energy Information Administration or EIA and the International Energy Agency or IEA have been slashed, shows more sharp decline in global demand.

U.S. inventories are dropping rapidly than expected signals increase in prices. Since oil is priced in USD, a strong dollar makes it more expensive for the rest of the world resulting in decrease in demand. With the IEA (International Energy Administration) and EIA's (U.S. Energy Information Administration) outlook that we'll have too much oil by the end of the year, it creates a ceiling that prevents prices from breaking out.

To date, the OPEC basket price dropped by 104.56 from previous week’s 107.19. This is a signal the cooling of war premium.

Table shows how OPEC supply declining for months February and March due to involuntary supply disruptions in KSA (Kingdom of Saudi Arabia) and Iraq oil fields rooted from the blockades and infrastructure damages. Despite deep reserves, the alliance is effectively maxed out by regional conflict, keeping global supply in a chokehold that naturally inflates the price floor.

Will WTI Support Hold?

Daily chart

• Resistance 1 92.354 (near the 20-SMA, high frequency in 4-hour chart)
• Resistance 2 94.272
• Resistance 3 95.179 (since April 9)
• Support 1 86.80 testing price level
• Support 2 84.93 (based on the 4-hour chart)
• Relative Strength Index (14) 47.52 neutral to bearish

Conclusion & The ACY Edge

We expect bearish consolidation for the WTI (West Texas Intermediate) since the level is grappling to maintain the 89.00 level providing bearish momentum from the RSI (Relative Strength Index). 

WTI is in a stalemate near $89.50. While the 10-day Israel-Lebanon ceasefire is cooling the fear-based price premium, a massive supply shortage is preventing a crash. Even as tensions gradually ease, the 12.77 million barrels per day deficit in OPEC output means physical oil is still in short supply from the market. WTI remains confined in a battle, peace talks are making the prices drop yet the shortage sustains high price floor.

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