Oil’s charge of the light crude brigade continued unabated overnight with both Brent and WTI galloping 3.0% higher and even Natural Gas shaking of its multi-month lethargy, rising 3.50% in New York trading. Geopolitics continues to drive price surges, which is unsurprising when mainstream media use words such as “purge” to describe the situation in Saudi Arabia.
Saudi Arabia’s apparent purge aside, the rally comes against the backdrop of potential disruption of supplies in Iraqi Kurdistan, Libya and also forgotten in the noise, Venezuela. Venezuela appears to be nearing a default endgame at last with the country struggling with quality control issues of its already modest and declining exports. Much of Venezuela’s production is destined for U.S. refineries, and this should be supportive for WTI even if the Saudi Arabia situation calms down.
With an OPEC and Non-OPEC production cut extension seemingly a done deal and Nigeria indicating its support, all would seem rosy for oil’s short-term price momentum to continue. The original charge of the light brigade did not end well, however, and we continue to caution that the short-term technical indicators are now severely overbought on both contracts. Geopolitics can override these of course but like the original charge, the longer it went on, the uglier it became. In this case, crude could become vulnerable to an increasingly aggressive correction without some consolidation of the recent rallies.
Brent spot is trading unchanged at 64.25 this morning with initial resistance at the overnight high of 64.60. Its nearest long-term target at these levels remains the 69.00 regions. With oil running on vapors, support appears at 64.25 followed by a lot of clear air until the triple daily bottom at 60.00.
WTI spot is at 57.10, the overnight high at 57.40 being initial resistance, the bottom of a mid-2015 multimonth congestion zone that extends to 61.00 which is the next technical target. Support is at 55.50 followed by a series of multi-day lows around 53.60 and also today, the ascending trendline support that has held all pullbacks since the beginning of October. 53.60 is a critical support level with a break suggesting that the charge of the light crude brigade will be running into some severe cannon fire.