Breaking Down the Breakout in Oil

Key Takeaways:

  • Oil has staged an impressive rally over the last few months. Voluntary production cut extensions from Saudi Arabia and Russia have helped improve the supply side of the equation. U.S. stockpiles of oil have also dropped to year-to-date lows.
  • Oil demand is picking up. China has ramped up imports to near-record levels, while the International Energy Agency forecasts fuel consumption likely reached another record-high last month.
  • The math is simple—declining supply and rising demand equal higher prices. West Texas Intermediate (WTI) recently wrapped up a nine-day winning streak that lifted oil out from a major bottom. Momentum is confirming the breakout.
  • In terms of upside, the next major area of overhead resistance for WTI sets up near the $94 to $97 range, which traces back to the August-November 2022 highs and a key Fibonacci retracement level of last year’s bear market in oil.