Crude oil prices have rallied sharply today. At the time of this writing, Brent oil was trading around $56.80 and WTI around $50.90 per barrel. Sentiment has turned positive again on renewed hopes that supply of oil will reduce in the coming months. Saudi Arabia, for one, is now planning to reduce its oil exports in November by a good 560,000 to 7.15 million barrels per day. On top of this, OPEC’s Secretary General Barkindo has indicated that the supply cuts will need to be extended next year, and called on U.S. shale oil producers to do their bit in limiting supply. Although it is questionable if any U.S. oil producers will actually listen to him, the fact that Russia and a few other non-OPEC members are continuing to comply with the Saudi-led supply cuts suggests there is a strong consensus among oil producers to do whatever is needed to shore up prices, as this would be good for all parties involved. So, who knows, U.S. oil producers may actually hold off ramping up oil output until prices recover meaningfully. Meanwhile, a weaker U.S. dollar is also helping to drive up oil prices, although this is not a primary source of support.
As a result of the rally, WTI’s long-term bullish technical outlook has remained intact, as no major lows were taken out during the downward move that began at the end of September. Quite the contrary, in fact, as a new higher low has now been formed around the 200-day moving average. This has extended the run of higher lows and higher highs that have been prevalent since the summer. With WTI also residing above both its 50 and 200 daily moving averages, and above a broken downward trend, I cannot possibly be bearish at this point in time. Granted, things can and will change quickly in the markets, but taking all the technical indications into consideration, the chart is telling us that oil prices want to push higher. The first level of potential resistance is now not too far off at $51.25, previously support. Above this level, $52.40 would be the index hurdle to clear. On the downside, short-term support is seen at $50.75.