WTI Crude oil, which has rallied strongly since mid December, closed yesterday at the highest level in eight months rallying by 4.2 percent on the first trading day of the year. The strong performance is based on a combination of increased geopolitical risk in Iran, improved economic data from the U.S. and China (the world’s two largest consumers of oil) and a softer dollar.
Geopolitical risk however is the main engine that has kept this rally going and with many traders entering the new year with flat positions on their books this has been the catalyst for the buying seen so far. The risk however is that the global economy in its current fragile state will not be able to cope with higher prices at this stage and further price rises, which act as an extra tax on the consumer, raising the fear of a disorderly sell-off once the tensions in the Middle East ease.
For now though only bravehearts will go against the move considering the risk of a further spike should the tensions lead to a conflict around the Strait of Hormuz.
Technically the near spot month of WTI crude should find some resistance towards the June and November highs at 103.40 followed by 105 while support comes in at 101.70 followed by 98.40.
Ole Hansen
SAXO BANK