have steadied in the last couple of days following Tuesday’s news-driven drop when reports of a peace deal between Ukraine and Russia hit the wires. The recovery comes despite a larger-than-expected build in US oil inventories. Price action, therefore, suggests that most of the bearish news might already be factored in.
But so long as there is no compelling reason for prices to rally, the longer-term outlook on oil remains negative. Indeed, a potential peace deal between Ukraine and Russia—whenever that arrives – could mean more supplies hitting a market already saturated. Negotiations are trundling along between Kyiv, Moscow, and Washington, and that might take a while.
So, nothing is signed yet, and that explains why prices have stopped falling for now. Mind you, even if a peace doesn’t come to fruition, crude’s upside still looks capped. Between excessive supply and flimsy demand growth, the prices remain tilted to the bearish side.
Russia-Ukraine Potential Peace Could Hurt Oil Prices Further
Markets have been slow in pre-pricing peace because of the nature of the uncertainty, but peace could eventually mean eased sanctions on Russia. And if sanctions are relaxed, we might see more Russian barrels sloshing back onto a global market that’s already awash with crude.
Thus, any real progress towards peace this week could add pressure to oil prices, as investors price in larger supply into a market that frankly doesn’t need it. The simple arithmetic of crude markets is this: more oil + steady or falling demand = lower prices. And the sums right now aren’t flattering.
The Supply Problem
Let’s rewind to before the diplomatic chatter took centre stage this week regarding the Ukraine war. West Texas Intermediate (WTI) had already been on a multi-week losing streak, languishing below the psychologically important $60.00 mark. The OPEC+ has been releasing previously withheld output, producing more oil when demand is hardly crying out for it.
Meanwhile, American oil producers have been pumping too. The result is oversupply, and it is this concern dominating headlines and pressuring prices.
So, with the OPEC+ loosening the taps and US shale adding to the flow, prices will be finding it difficult to stage anything more than brief relief bounces – like the ones we have seen repeatedly in the past. Until something changes fundamentally, this supply pressure should keep prices under pressure.
Demand: Not So Great Either
Now, supply is very much the elephant in the room, but we can’t ignore demand entirely. The US economy has been sending mixed signals, with recent economic prints coming through a tad soft. Investors are squinting at the data, wondering if oil consumption will hold up into next year. The global demand picture isn’t exactly inspiring confidence either.
Should demand weaken further whilst supply continues its upward march, we may well see the market slide deeper into disequilibrium. Crude prices would therefore need to adjust lower to find new equilibrium. Until the world economy shows signs of picking up pace—or supply meaningfully pulls back—the demand story may add incremental pressure to an already fragile price environment.
WTI Technical Analysis and Trade Ideas
The chart of crude oil has been painting a textbook downtrend: lower highs, lower lows. The main moving averages and the trend lines all have negative slopes. The recovery off the lows should therefore be taken with a pinch of salt until we see a clear bullish reversal – and some positive oil news to go with it.
So, where are the key levels on WTI futures?
- $59.00 is the initial level of resistance, with a bearish trend line coming in slightly above it
- $60.00 per barrel remains the big psychological resistance level for WTI
- Clear these two levels and $62.00 would come into focus next
- Support is seen around $57.25 area initially
- Most recent low was around $56.00 in October, making it the next logical target for the bears
- April low at $55.12 is the April low and the main downside objective as it comes in just ahead of the next psychological level of $55.00.
Unless fundamentals shift sharply, and there’s no major evidence of that just yet, the continuation of this downtrend in the weeks ahead wouldn’t be a shock to the system.
***
Below are the key ways an InvestingPro subscription can enhance your stock market investing performance:
- ProPicks AI: AI-managed stock picks every month, with several picks that have already taken off in November and in the long term.
- Warren AI: Investing.com’s AI tool provides real-time market insights, advanced chart analysis, and personalized trading data to help traders make quick, data-driven decisions.
- Fair Value: This feature aggregates 17 institutional-grade valuation models to cut through the noise and show you which stocks are overhyped, undervalued, or fairly priced.
-
1,200+ Financial Metrics at Your Fingertips: From debt ratios and profitability to analyst earnings revisions, you’ll have everything professional investors use to analyze stocks in one clean dashboard.
-
Institutional-Grade News & Market Insights: Stay ahead of market moves with exclusive headlines and data-driven analysis.
-
A Distraction-Free Research Experience: No pop-ups. No clutter. No ads. Just streamlined tools built for smart decision-making.
Not a Pro member yet?
Already an InvestingPro user? Then jump straight to the list of picks here.
Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.
