Oil Forecast: Bearish Pressure Pushes WTI Toward the $70 Zone

The price of WTI has dropped more than 3% over the last three trading sessions. This significant bearish movement is mainly due to a potential easing of geopolitical tensions, such as the conflict in Ukraine, along with new data suggesting a possible increase in global oil production. These factors have created sustained downward pressure on crude oil prices.

Increase in Production

One of the most critical factors to consider is the growing concern over rising global oil production, which could lead to an imbalance in supply and demand. An increase in supply generally puts downward pressure on prices, which could keep WTI in a bearish trend in the short term.

First, Iraq's oil minister stated last Saturday that the country is preparing to end the sanction period on oil exports, which could add 185,000 barrels per day to global production.

Additionally, peace talks between the United States and Russia regarding the Ukraine conflict, which has persisted for over three years, are currently taking place. The U.S. government's recent push for these negotiations has shifted short-term risk perspectives, generating expectations of a solid resolution to the conflict. This has fueled speculation that some of the sanctions on Russian oil exports could be lifted, further contributing to an increase in global supply.

Another key factor is Trump’s energy policy, which focuses on expanding fracking, with the goal of positioning the United States as one of the world's leading oil producers. This approach goes against the preventive measures taken by OPEC, which previously sought to curb overproduction to stabilize prices.

These developments have heightened concerns about a potential oversupply, especially given that oil demand has not shown significant growth. In fact, global economic growth forecasts for 2025 have been revised downward, indicating that demand may remain stable or even decline. This scenario gives a clear advantage to supply, which could further reinforce the bearish bias in WTI price movements.

What About Market Confidence?

The OVX (Cboe Crude Oil Volatility Index), which measures expected 30-day volatility in oil prices, has seen a sharp increase in the short term. On February 21, the index reached 35.79, significantly higher than the 27.47 recorded on February 18.

Source: CBOE

A steady increase in the OVX often suggests that the market anticipates higher uncertainty, whether due to geopolitical factors or increased oil production. This is precisely what the index has reflected in recent days, particularly on Friday, February 21, when oil experienced a sharp decline.

Confidence in crude oil prices could remain relatively stable as long as the OVX stays at or below 30. However, if the OVX’s upward trend continues and surpasses 40, uncertainty about oil’s future could create sustained bearish pressure on crude prices. If the index reaches levels not seen since November 2024, the lack of confidence could become an even greater challenge for oil prices.

WTI Technical Outlook

Source: StoneX, Tradingview

• Large Sideways Range: WTI continues to trade within a sideways channel, with $76 as resistance and $67 as support. The latest bearish move failed to reach the lower boundary of the range, stopping at the tentative support of $70 per barrel. As long as the price remains within this range, it is unlikely that stronger trends will develop in the short term.

   

• ADX: Currently, the ADX line has shown a notable decline, fluctuating below the neutral level of 20. This indicates that the average movement over the last 14 periods does not display a clear trend, reinforcing market neutrality.

  As long as the ADX line remains at these levels, it is unlikely that significant price movements will occur in oil in the upcoming sessions.

   

  Key Levels:

   

• $72: Near-term resistance. This level coincides with the area marked by the 50-period and 100-period simple moving averages. If the price consistently breaks above this level, it could trigger a stronger bullish bias, potentially leading to a move toward $76, which represents the upper boundary of the long-term sideways range.

   

• $70: Critical support. This level aligns with recent price lows. If oil breaks below this zone, bearish pressure could intensify, solidifying the selling pressure observed last Friday.

   

• $67: Definitive support. This level represents the lowest price zone within the broad sideways channel. If WTI falls below this support, it could signal a structural shift, leading to a more significant bearish trend in the long term.

Written by Julian Pineda, CFA – Market Analyst