The West Texas Intermediate Crude Oil market rallied rather significantly again on Tuesday as we continue to see a lot of concerns when it comes to oil disruption, especially as the Biden administration has now banned all Russian imports into the United States.
While the United States only gets roughly 3.5% of its oil from Russia, the fact that people are starting to do this suggests that we are about to lose 10% of the crude oil supply at the same time that demand is starting to truly pick up. After all, the markets are trying to price in the idea of the world reopening, which has a major influence on demand. Keep in mind that during the pandemic, very little oil was drilled so there is a certain period of “catching up” that needs to be done.
When you look at the charts in general, it is a situation where you should be able to wait for value on some type of dip that you can take advantage of. Clearly, the only direction you should be trading this market is to the upside, so I have no interest in trying to short this market even though I do think we will probably pull back quite drastically sooner or later.
The $130 level continues to be a bit of resistance, so breaking above that level could open up the possibility of an impulsive move higher. That being said, I do not like the idea of chasing a trade like that, so if we do pull back from here, I think the $120 level would be supported, and then possibly the $110 level. The absolute “floor in the market” is the $100 level.
I have no interest in trying to chase this trade, so it is simply a matter of waiting for an opportunity. We do not have an opportunity at this point though, so I think if you are not already long of this market, then it is almost impossible to get involved at the moment. If you are already long of oil, then you need to perhaps think about taking profits, or at the very least moving your stop-loss orders up, so you do not give up too much of your gains. The crude oil markets continue to see extreme volatility, so keep your position size reasonable.
