WTI Crude at $78.33: Drone Strike & Supply Risks Stir Market

WTI crude oil prices witnessed an uptick at the start of the week, driven by heightened concerns over potential supply disruptions. This comes in the wake of a drone attack on U.S. forces stationed in Jordan and increased aggression towards shipping in the Red Sea by Houthi rebels, including an attack on a Trafigura-operated fuel tanker.

The threat of an expanding conflict emerges as Russia faces a decrease in refined product exports due to drone attacks that have damaged several refineries. Brent crude nudged higher to $83.84 a barrel, while U.S. West Texas Intermediate crude saw a rise to $78.35 a barrel, both reflecting a 0.4% increase.

The drone strike, which resulted in American casualties, has sparked worries about a broader conflict in the Middle East, potentially impacting the region’s oil output. RBC Capital’s Helima Croft suggests that the incident could lead to more significant U.S. engagement, with the risks of confrontation with Iran amplifying fears of supply chain interruptions.

After putting out a fire started by a Houthi missile strike, Trafigura is reassessing security measures for future Red Sea navigation. Both oil contracts have climbed for consecutive weeks, hitting their highest closing prices in nearly two months last Friday, bolstered by supply concerns from the Middle East and Russia and optimistic economic signals from the U.S. and China.

Following fires at its refineries, Russia anticipates a significant reduction in naphtha exports amid these tensions, according to traders and LSEG ship-tracking data.

Looking ahead, OPEC+ is set to convene online on February 1st. While this meeting may be too premature for definitive output policy decisions, OPEC+ sources indicate that production levels for April and the following months will likely be discussed in the ensuing weeks.

In the commodities market, WTI crude oil is currently priced at $78.33, marking a slight decline of 0.26%. Analyzing the weekly chart, a pivot point establishes itself at $78.12, suggesting a tentative balance point for traders.

Resistance levels are positioned at significant Fibonacci retracement markers: $81.28 at the 50% level, $84.38 at the 61.8% level, and a higher resistance at $88.28. Should the price ascend, these thresholds will challenge bullish momentum.

On the flip side, support levels stand firm at $74.23, $70.65, and $67.83, offering potential stabilization points.

The RSI hovers around 51, signalling neither overbought nor oversold conditions, while the MACD at 0.15 is neutral, though a cross above the signal line could indicate emerging bullishness. The 50-day EMA at $77.42 further reinforces the trend strength.

Recently, WTI has formed a bullish engulfing candlestick pattern, closing above $77.45 and crossing the 38.2% Fibonacci level, asserting a short-term bullish outlook. Therefore, the forecast remains bullish as long as the price remains above the pivot point of $78.12.