The West Texas Intermediate Crude Oil market rallied a bit on Tuesday but pulled back to show signs of exhaustion. This market had been a bit overdone over the last couple of days, so is very likely that we will see a little bit of a pullback in order to build up the necessary momentum.
The 50-day EMA underneath offers a nice bounce, and now it sits just above the trend line that we have been paying so much attention to recently. The market will continue to be very noisy, but ultimately, I think the uptrend is still very much viable. This is especially true considering that the structural supply issue has not truly been addressed, as there was hardly any extraction during the pandemic. Now that the world is opening up, keeping up with demand is going to be very difficult.
Furthermore, we have the war in Ukraine causing Russian oil to be almost nonexistent, and that does not have a good influence on this market. Ultimately, this is a market that I think continues to see a lot of upward pressure over the longer term, but we had recently gotten parabolic again, which is something that cannot be sustained forever. In fact, the more volatile that we remain, the more likely we are to see some type of breakdown.
If you see another spike in this market, you could end up seeing another deep crash. After all, there does come a point where the price of gasoline becomes too expensive for most people to bother with, and that will drive down the price of crude oil as demand drops. It is something known as “demand destruction”, which is something that we should be seeing relatively soon if this continues. However, if we can get some type of more sustainable and steadier rally, then it is possible that crude oil can go much higher without causing problems for itself. At this point, I prefer to buy dips and will continue to look at them as the potential value in a market that should go much higher. In fact, it is not until we are well below the $100 level that I would be concerned with the overall uptrend that has been so strong.
