As the fallout from the Russia-Ukraine war cools, oil is seeing a big retreat over the past week with WTI falling from a high near $130 to $98 levels at the moment.
The market feared sanctions would escalate but that doesn't seem to be the case now as Europe refuses to shoot themselves in the foot and other major importers such as India and China are refusing any boycott.
So, what's next for oil prices from hereon?
The geopolitical strife sent things into overdrive and the technical break above $95 saw price skyrocket all the way through $100. We reached the target of $120 to $125 before the big retreat is taking place now.
From a fundamental perspective, I am still bullish on oil prices but China's lockdown does throw a slight curveball into the picture. Add in stagflation risks i.e. economies slowing, then that could impact the bullish outlook in the months ahead. (*)
The bullish outlook is largely built on a confluence of factors, that being inventories are low, producers struggling to keep up with recovering demand (*), and a curve which was in steep backwardation before. Throw in the continued dependency on oil in the green transition and that has the makings for a strong fundamental support.
Of course, the latter is something that will take years to play out but it is one to be aware of.
With everything in play now, I'm not as bullish as I was with prices at $70 but I would argue it can keep above $80 at the very least from hereon. It would take a major economic downturn to really throw a wrench in the works.
Based on the chart, the 50.0 retracement level @ $95.94 will be a key target but round figures may do more of the talking at this point. The $90 mark will be one to watch before revisiting the 100-day moving average (red line), now seen near $84.