- WTI has pulled back sharply to the $116s after hitting its highest levels since 2008 above $127.50.
- Chatter of a Western ban on Russian exports spurred the initial surge higher, though Germany and Japan pushed back.
Though still trading with on the daily gains of about than $1.0 in the $116 per barrel area, front-month WTI futures have seen a substantial pullback from earlier session highs. For reference, WTI surged to its highest levels since 2008 on Monday, printing near-14-year highs in around $127.50 mark, up a massive near $13.00 on the session. That means that even despite the more than $11 pullback from intra-day highs, WTI still trades with on-the-month gains of more than $20 – incredible given it's only the seventh day of the month.
Geopolitics (Russia’s invasion of Ukraine and the West’s response with sanctions) has of course been the major bullish catalyst of the recent historic bull run. The latest leg higher was triggered by chatter from US leaders in the government and Congress about a potential ban on Russian energy imports, as well as coordinating such a ban with European and other partners. Germany and Japan appear to have both ruled this out, for now, news which is likely behind the aggressive reversal back from highs in recent hours.
“With the surge in geopolitical tensions, uncertainty and anxiety, it would be quite difficult to accurately gauge the top of this rally” said one analyst. “We consider $125 per barrel, our near-term forecast for Brent crude oil, as a soft cap for prices, although prices could rise even higher should disruptions worsen or continue for a longer period” said another analyst at UBS. “A prolonged war could see Brent moving above the $150 per barrel mark,” they added.
One thing is for sure, amid massive uncertainty on multiple fronts, volatility is likely to remain a feature in global oil markets for some time. Talks to revive the 2015 Iran nuclear pact reportedly run into some difficulties over the weekend amid new Russian demands, dampening the prospect of an imminent return of much-needed Iranian oil exports. The US now appears to be buttering up Venezuela for more exports and looking at measures to increase output in North America, but if Russian exports are about to be/already severed from the global markets, this will likely be viewed as too little too late.
As major US and other Western banks fall over themselves forecasting that oil will soon surge into the upper $100s per barrel, it seems likely that WTI will remain a buy on dips. Amid elevated volatility, conditions are set to remain highly challenging for intra-day traders. WTI it currently probing last week’s highs in the $116.00s and some may be tempted to add to longs in this area. Should this level go, there isn’t much by way of support all the way down to the $105-$107 area.