WTI: Is WTI Headed for a Price Collapse or a Supply Spike?

Oil's Breaking Point Supply Crisis or Demand Crash?

The world is encountering huge energy scarcity due to the ongoing conflict and the closure of the Strait of Hormuz.

Supply Gap with the latest from the International Energy Agency, global oil supply crashed by 10.1 million barrels per day (mb/d) in March the largest break in history.

Roughly at 20% of global LNG stalled behind the blockade, power plants in Asia and Europe have switched to burning oil. This emergency demand is the only factor preventing a price collapse as the broader economy slows.

The Main Drivers

• The Federal Reserve on April 29 is trying to fight war-flation wherein the high prices caused by the conflict. If the Federal Reserve will keep the rates high to curb inflation, resulting in a stronger US Dollar which typically puts downward pressure on oil prices.
• The Interest Rate Lever. If the Fed maintains high interest rates to combat the rising costs, it might restrict consumer spending and credit status. This move will make the US Dollar strong, which historically forces oil prices downward.
• Expensive Gas with gas at 4.30/gal. The US national average is currently $4.10/gal, though West Coast prices like California are seeing $5.90+ when consumers are spending less. if upcoming economic reports confirm that the economy is slowing while prices stay high which we call as stagflation, oil prices might collapse because traders will expect a recession.

If the Federal Reserve will be aggressive approach on inflation while the economy looks fragile, oil prices might decline.

• The market is hesitant, but downside risk is growing.
• Why would prices fall? (Bearish) If the Federal Reserve keeps interest rates high and peace talks move forward, oil prices could drop toward 79.87.
• Why would prices rise? (Bullish) If the Federal Reserve will lower the rate and if the blockade in the Strait of Hormuz continues, prices could go back up toward 94.85.

Why is there a big price gap?

You might notice that Brent (the global oil price) is much more expensive than West Texas Intermediate (US oil). This is happening because:

• The US has plenty of oil in storage, which keeps WTI prices lower.
• Europe and Asia are desperate for oil because Middle Eastern supplies are blocked, which keeps Brent prices much higher.

TECHNICALS

Resistance 1 94.85 This is the toughest barrier for prices to climb. It marks a key Fibonacci level (0.382) and where the 20-day average price is currently trending downward. This zone is also being reinforced by the April 14 Highs, where the market first reacted to the permanent damage reports at Qatar's Ras Laffan facility

Resistance 2 96.80

87.36 price reset

Support 1 85.30

Support 2 79.87 if breached here can possibly to slide further

Conclusion & The ACY Edge

West Texas Intermediate is currently caught in struggle between two powerful forces. If the price breaks higher than 87.36 proving that supply fears (the Hormuz blockade) are still the main factor with a possible to push prices toward 94.85. If it slides lower than 85.29, it shows that the market is shifting its focus to a global recession.

The IEA report confirms this paradox that while the world is physically short on energy, oil has become too expensive for the economy to inhale. Despite the historic supply crisis, the risk of a price drop is increasing because the global economy is reaching its breaking point.

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