Crude Oil Hits 2015 High on Yemen Fears

A re-invigorated bombing campaign in Yemen has spooked crude oil markets and forced WTI higher in trading today. Despite statements by Saudi Arabia, air strikes continued today with over 20 Houthi positions being targeted, with little sign of abatement. Obviously, concerns remain over the safety of oil shipments, passing through the critical Bab-el-Mandeb strait, and subsequently an additional risk premium has been added to crude prices.

WTI crude prices had recently experienced a retracement from the 2015 highs based on a growing US domestic stockpile at Cushing. However, the US domestic industry responded quicker than expected, to falling crude prices, with rig stand-downs exceeding market forecasting. This rapid stand-down, along with the increased geo-political risk in Yemen, has sought to provide support for oil prices and the commodity now faces a retest of the 2015 highs.

From a technical stand point, crude oil prices remain constrained within a bullish channel and above the 100 day moving average. The RSI also remains neutral and is showing a similar bullish channel of which crude is currently supported by. The 6EMA and 30EMA have also crossed, showing a long side bias, which is likely to be confirmed in the coming days. The key to a strong rally appears to be a concerted breach of the 2015 high, which is located within the 58.65 range. Price closing above this key resistance point is likely to signal further upside moves in the coming days.

However, the downside risk is evident with the recent push higher being defeated right at the 127.2% Fibonacci level. Also the MACD lines are declining, signalling that some momentum is being lost. Despite the negatives, any pullback is likely to remain a small correction within the current bullish channel.

Ultimately, the price of crude is currently driven by geopolitical risk rather than pure fundamentals and any move by the Saudi Arabian coalition to expand military operations is likely to cause further upside movements. Rather than seeing the recent movement of US Naval assets towards the gulf as inflammatory, I view them as a stabilising force that can ensure that shipping continues to be allowed to move unmolested through the strait.