WTI’s rally may recharge near $93

Global markets are in sell-off mode, but oil has quickly recovered and is rising for the second day after a shallow correction. The dollar index added for the 11th week in a row - one of the most persistent rallies in its history. But oil has been in a rally for even longer - 13 weeks - adding 35%, albeit with brief interruptions.

The rising dollar is putting pressure on the markets, and it’s easy to see this in key stock indices and even gold. Oil often falls with an even greater amplitude than stocks or other commodities.
But in recent weeks, oil has been aided by geopolitics, which has helped it climb in the form of tighter monetary policy and a slowdown in consumption in most countries.

The rise since the end of June can be divided into several phases with brief corrections at the end. The increase in the price of a barrel of WTI from $67 to $77 was the first stage. The second stage lost strength in early August on the approach to $84, fitting nicely into a Fibonacci pattern with a 161.8% rise from the first impulse. The corrective pullback was halted on the path to the previous peak.

The next milestone is reaching 261.8% of the first impulse, just above $93. Last year’s October and November peaks are located near the same level. We should expect a significant intensification of the struggle between bulls and bears on the approach to this level. Large speculative buyers may want to lock in profits at the end of the month and quarter after a stunning rally against the general market weakening. This will also let off steam in an overheated market, making it attractive to new buyers.

That said, we believe in oil’s long-term bullish outlook given its strong support from the market and authorities on touching crucial technical levels - the 200- and 50-week moving averages. This promises the world a prolonged fight against inflation, which must be fought through slowing demand, not by falling prices of the key commodity. We got the same signal in 2019, but COVID-19 provided a historic chance for bulls to buy even lower.