Crude Oil Upside: Can WTI Sustain Momentum As Hormuz Bottlenecks?

This commodity took off to the upside on Friday as we continued to see buying pressure despite the fact that we gapped lower. The overall market for the WTI crude oil contract is very bullish as of late, which makes sense considering we are seeing more tensions in the Middle East and other concerns flaring up, such as the recent shutdown of U.S. oil production in the Gulf of Mexico during the hurricane.

With this being the case, it's a market that's looking to fill a gap from a couple of weeks ago, and it certainly looks like there are plenty of buyers involved.

Short-Term Pullbacks Continue to Get Bought

Short-term pullbacks continue to get bought into as traders are watching this behavior very closely. The $95 level has acted as a nice support level over the last 48 hours, and, for that matter, three days ago was a bit of a magnet for price. This area continues to see a lot of action in a back-and-forth manner, as the headlines are all over the place.

Now that the market has broken above a somewhat important resistance barrier, it'll be interesting to see how it behaves as it goes toward the $100 level. One of the biggest problems that traders will have at the moment is that there is a bit of a mixed picture when it comes to oil inventories. There is sustainable oil on the water at the moment, but not on land as far as the norms are concerned. In other words, refineries are not getting as much crude oil as they did pre-war.

Interest Rates, Inflation, Supply

The question at this point in time will also focus on interest rates, inflation, and the idea that ships in the Middle East can get through the Strait of Hormuz and other places. The last week has seen an increase in that, which did help drive prices down a little bit, but since then tensions have flared up yet again. Of course, people are starting to question the idea of how long this situation lasts. As things are going, it seems as if it could be a longer-term problem in this market.

The alternative scenario would be some type of good news coming out of the Middle East, perhaps even some signs of peace overtures between the Americans and the Iranians, but so far it looks like that is just wishful thinking. If that were to happen, I'd watch the $95 level as an area that could attract some buying pressure, and then again at the 50-day EMA. Cracking below the $90 level with some type of peace coming out of the Middle East, however unlikely, would send a strong bearish signal to the market.

Dip Buyers Continue to be Attracted to WTI

Ultimately, this has been a situation where buyers continue to get rewarded on each and every dip. As we head into the weekend and start to look toward the early part of the week, traders look to be approaching this with some fear of disruption. That being said, headlines coming out of the Middle East will continue to be one of the biggest drivers here, and as a result, traders are likely to pay close attention to the news services more than anything else.

As things stand, we have recently bounced from a trend line and recovered quite nicely. The question is: can we have sustained upward momentum, or are we just floundering around, perhaps trying to fill some type of technical gap area to satiate the demands of future traders?