WTI Hits New Multiple Highs at $123.50 as Uptrend Continues

• WTI has broken to fresh multi-month highs at $123.50 on Tuesday, maintaining the recent uptrend.
• OPEC’s supply problems came into the spotlight after the cartel said output fell in May (vs. forecast rise).
• Traders will be watching China’s closing situation and the macroeconomic reaction to the Fed meeting on Wednesday.

In line with the recent uptrend, oil prices broke higher on Tuesday, with WTI futures of prime month rising to $123.50 a barrel, where they are trading up more than $2 on the day and almost $6 higher from Monday’s lows near $118. Concerns over a tight global oil market, as demand in the northern hemisphere continues to rise during the peak summer driving season, but supply fails to keep pace, is holding prices up in the face of falling assets risk factors, such as stocks and other economically sensitive commodities.

OPEC reported on Tuesday that its production fell by 176,000 barrels per day in May, a major breach of the production increase it had set as a target in its agreement with OPEC+ members. Smaller producers (mainly African) continue to find it difficult to increase production to the extent allowed by the supply pact. For its part, Russia, a country that does not belong to OPEC but does belong to OPEC+, the world’s third largest oil producer, continues to see its production fall as a result of Western sanctions for its invasion of Ukraine.

WTI bulls are still looking for a test of the early March highs in the $130 area, which seems likely given the bullish technicals, where dips have been systematically bought since mid-April. The main threat to the rise in prices at the moment is that the main Chinese cities again undergo a strict closure like the one they did a few months ago, which would affect demand in the second largest oil consumer in the world. Wednesday’s Fed meeting may also trigger a further decline in global risk assets and a rise in the US dollar, although oil has weathered these headwinds in recent weeks. Weekly API Private Crude Inventories data due out at 20:30 GMT also deserves attention.

Technical levels