WTI consolidates around $85.50, just below the yearly high reached on Monday

• WTI crude oil prices consolidate recent gains to a new yearly high hit on Monday.
• A combination of factors favors the bulls and supports the prospects for further appreciation.
• A slight drop in the dollar reinforces the positive outlook for raw materials.

Crude oil (WTI) prices have entered a bullish consolidation phase during the Asian session on Tuesday and are range bound around $85.50, just below the 2023 high reached the previous day.

Prospects of lower global supply, coupled with hopes for demand recovery in China, turn out to be key factors acting as a tailwind for black gold. In fact, investors expect the Organization of the Petroleum Exporting Countries (OPEC) and its allies (OPEC+) to extend production cuts until the end of the year. In addition, Saudi Arabia – the world’s leading oil exporter – is expected to extend its voluntary cut of 1 million barrels per day (bpd) to October for the fourth consecutive month.

In addition, Russian Deputy Prime Minister Alexander Novak has stated that Moscow has agreed with its OPEC+ partners the parameters for the continuation of export cuts in October. Investors are now awaiting further details on the deal, which will be released this week. Meanwhile, optimism that additional stimulus from China, to underpin a slowing economic recovery, will boost fuel demand and provide additional support to WTI crude oil prices. This, in turn, supports prospects for further earnings.

In addition, a slightly softer tone around the US dollar (USD), weighed down by growing acceptance that the Federal Reserve (Fed) will soften its hawkish stance, could support dollar-denominated commodity prices, including oil prices. The mixed report on employment in the US, released on Friday, pointed to a slight deterioration in the labor market. This gives the Fed less room to keep raising interest rates. In fact, the Fed is expected to keep interest rates unchanged at its September policy meeting.

The aforementioned fundamental background suggests that the path of least resistance for WTI crude oil prices is to the upside. However, on the daily chart, the oscillators are about to enter the overbought zone. This, in turn, is preventing the bulls from opening new positions and capping the upside, at least for the time being.

WTI technical levels to watch