WTI rises towards late March highs at $116.50

• WTI has continued to rise on Tuesday, reaching $115.50, up some $17 from last week’s lows below $100.
• Easing China lockdown fears coupled with Russia/OPEC+ production issues and risk appetite inflows are supporting prices on Tuesday.
• The bulls are looking for a test of the late March highs at $116.50.

oil prices have maintained and extended their recent bullish momentum on Tuesday, with WTI futures of the first month rising to $115.50 per barrel and aiming to test the late March highs of $116.50. Constructive updates regarding the Covid-19 situation in China, with Shanghai reporting no Covid-19 infections outside of lockdown for a third day, have fueled hopes of an imminent lockdown easing. This, combined with a general feeling of heightened risk in global macroeconomic trade and a weaker US dollar amid hopes that Chinese tech measures will also ease, has injected the latest momentum into WTI.

Benchmark US light sweet oil is now trading about $17 higher, off last week’s lows below $100. While the easing of China shutdown fears has been the latest bullish catalyst, analysts continue to cite numerous other factors as supporting prices. Firstly, traders remain betting that the EU will soon agree to some kind of embargo on Russian oil imports (although Hungary remains opposed), with some pointing to the EU summit on May 30-31 as a possible date on which that an agreement could be reached.

An embargo would be a devastating blow to Russia’s already depleted oil production. Since the West imposed harsh sanctions on the nation for its invasion of Ukraine, Russian production has dwindled as exporters struggle to find buyers. OPEC+ production fell short of the group’s target of 2.6 million barrels per day (BPD) in April, according to a Reuters study published on Tuesday. Half of this default was due to falling Russian production and the situation is expected to have worsened this month. But the latest report also highlighted the difficulties many small OPEC+ countries continue to have in increasing production in line with their target, despite high oil prices.

Continued production problems from Russia and OPEC+, coupled with easing shutdown fears from China, have turned out to be a bullish combination for oil markets in recent days. If risk appetite in broader markets (such as equities) continues to improve, WTI could break back above its late March highs of $116.50 in the near future. This would open the door for a rally towards yearly highs around $130. Should the bulls become fatigued, support in the form of previous monthly highs at $111.50 should offer short-term support.