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Jan 13, 2025

Energies

XTIUSD: How Much Further Could Crude Prices Rise?

Fundamental Analysis: Reasons Behind the Recent Crude Oil Rally

West Texas Intermediate (WTI) crude oil prices have shown a strong bullish trend in recent days, reaching levels not seen since August 2024. Below are the main drivers behind this movement, explained in detail:

🔹 New U.S. Sanctions on Russian Oil

  • Context: The United States imposed additional restrictions, sanctioning nearly 200 vessels transporting Russian oil, along with major producers like Gazprom Neft and Surgutneftegaz.
  • Impact: These sanctions disrupt Russian exports, affecting approximately 1.7 million barrels per day (25% of Russia's exports).
  • Market Reaction: The anticipated drop in global supply drives prices higher, as India and China must turn to more expensive markets such as the Middle East, Africa, and the Americas.

🔹 Speculation on New Sanctions Against Iran

  • Context: Rumors suggest that Donald Trump's administration might tighten sanctions on Iranian crude flows.
  • Impact: The potential for increased restrictions on Iranian oil supply heightens concerns over tighter global supply, adding upward pressure on prices.

🔹 Technical Buying at Key Levels

  • Context: WTI broke above its 200-day Simple Moving Average (SMA) for the first time since August 2024, a significant technical milestone for traders.
  • Impact: This triggered automated buying from algorithms and technical traders, amplifying the rally.
  • Warning: However, an RSI nearing overbought levels could limit further short-term gains.

🔹 Market Structure in Backwardation

  • Context: Crude prices for immediate delivery are higher than futures prices, signaling a tight supply market.
  • Impact: This pattern encourages additional buying as traders seek to secure supply before prices rise further.

🔹 Limited OPEC+ Response Capacity

  • Context: While OPEC+ holds approximately 5.86 million barrels per day in spare capacity, it is insufficient to offset the impact of sanctions fully.
  • Impact: This sustains expectations of a tight market, reinforcing current price levels.

🔹 Strong Dollar as a Partial Headwind

  • Context: Expectations of a less dovish Federal Reserve have strengthened the U.S. dollar, making crude more expensive for international buyers.
  • Impact: While it dampens gains, concerns over global supply remain the dominant market force.

🔹 Price Projections from Goldman Sachs

  • Projection: Goldman Sachs analysts now expect Brent prices to surpass their projected $70–85 per barrel range due to logistical challenges and sanctions.

In summary, the recent crude rally stems from geopolitical, technical, and structural market factors. Although a strong dollar might act as a headwind, expectations of tight global supply continue to drive prices higher.

Technical Analysis
XTIUSD, Daily Chart

XTIUSD.jpg
  • Supply Zones (Sell): $81.00 (July 2024 POC).
  • Demand Zones (Buy): $73.61 (Current January POC, subject to change).

The price rally since December shows clear acceleration, breaking above the 200-day SMA last week, signalling strength. The current momentum, surpassing $77.00 per barrel, positions the macro support at $72.31. Alongside the broken November resistance (now support) at $72.53 and volume concentrations near $73.00 and $73.61, these form the final macro demand zone for potential liquidity correction.

  • Bullish Continuation: Targets include breaking resistance levels between $77.91 and $78.76 from October and August, with an extension toward the July uncovered POC at $81.00. This scenario holds as long as sellers don’t breach the macro support at $72.31.
  • Bearish Reversal: Confirmed if the price falls below $72.31, opening a path to seek liquidity near the December demand zone around $69.70.

Uncovered POC Explanation: POC (Point of Control) refers to the level or zone where the highest volume concentration occurred.

  • If it previously led to a bearish move, it’s considered a resistance (sell zone).
  • Conversely, if it preceded a bullish move, it’s considered support (buy zone), typically at lows.

Trading foreign currencies on margin involves significant risks and may not be suitable for everyone, as high leverage can increase both potential gains and losses. Before entering the foreign exchange market, it is essential to evaluate your investment goals, personal experience, and risk tolerance.

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Tibisay Ramos

Author: Tibisay Ramos

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