Will oil prices face a major correction?

Crude oil is gearing up for its first weekly loss after 8 weeks of consistent gains. Such a long period of uninterrupted growth has not been seen lately, therefore a correction had to occur sooner than later. Of course, the end of the session is still ahead of us while the situation is so tense that anything can happen. Should the conflict between Russia and Ukraine escalate, then the price of $ 100 per barrel for Brent and WTI seems to be a matter of time. But what if we take into account the positive scenario?

Scenario in which the war and the agreement with Iran do not take place

The most positive scenario assumes no escalation of the conflict. Russia wants to put pressure on other countries to obtain concessions from the Western countries. However, if Moscow wanted to win the war quickly, the attack would have started long ago, without showing any signs of strength (of course, this is just speculation, as nobody knows what's in President Putin's head). Nevertheless, let's assume that the conflict does not escalate any more from this point on, and it will diminish somewhat over time. In addition, we must pay attention to Iran. The country's nuclear negotiator said the deal was "closer than ever." An agreement is certainly needed, not only to strengthen Europe's energy security, but it would also be seen as a win for Biden, who has lost the support of US citizens significantly. A big diplomatic victory and potentially lower gasoline prices would certainly help him regain some support.

The uptrend is maintained, but the largest possible correction occurs

The price of oil has been moving within the widening wedge formation recently. From a long term perspective, this should be considered as a trend reversal pattern. However, only a test of the lower limit of the aforementioned formation around the USD 67-70 per barrel would indicate that the sentiment changed to bearish. Nevertheless, tense fundamentals do not indicate that the price will fall to such levels. Only the resumption of full production capacity by OPEC + and a strong increase in production from the USA or Brazil could lead to such strong price movements. It is worth mentioning, however, that in the near future we may see record production in the Permian, a key shale region in the US.

Small scale corrections

Smaller pullbacks should be in line with the ranges of the most recent corrections. The first key support is located around $ 85.00 which is marked with the local highs from October. The second range can be found at $ 80.00, resulting from the July correction. The third can be found around $ 75.00, which is marked with local highs from July. The last two levels also coincide with 50.0 and 61.8 Fibonacci retracements of the last upward impulse.

Nevertheless, it is worth noting that the fundamentals indicate a continuation of upward move, at least until mid-year. Moreover, any escalation of the conflict or further problems regarding Iran deaI could provide additional fuel for buyers. The correction itself can also be useful for the bulls to renew their long positions.

Source: xStation5