Oil – Shorts Getting Squeezed But How Far Can it Run?After trading between $65-70 for much of March as fears of a slowdown in the global economy would lead to reduced demand, Oil prices popped 3% yesterday to close at 71.50 and have initially nudged higher again today.
The catalyst for the recent move that led to this spike, unsurprisingly, were comments from President Trump. Yes, he seems to be moving all markets right now!
His weekend comments which suggested he was getting fed up with Putin dragging his feet on a Ukraine ceasefire, adding the US may work to restrict Russian crude shipments and consider secondary tariffs on buyers of Russian Oil, were enough for traders to reduce weak short positions, as this could impact Oil supplies, if it were to become a reality.
Add to that, yesterday’s positive news from China, the world’s biggest Oil importer, that showed manufacturing activity in the country expanded at a faster pace for the year to March, and you can see why prices have bounced in the short term.
However, can this move continue?
It could all depend on how aggressive President Trump and his team are tomorrow when they unveil the next wave of reciprocal tariffs on trading partners, in what President Trump has labelled ‘Liberation Day’.
Current expectations are for these new tariffs to impact all countries, but the size of the penalties is unclear, as are the size of retaliatory measures from China, Canada, EU and the rest of the world for that measure.
The worst ‘Liberation Day’ outcome could see Oil traders focus on a global recession and a potential drop in Oil demand, which could see prices fall from current levels, while anything else could see Oil prices continue to fluctuate depending on what it means for global trade and for the economies of specific Oil importing nations like China.
Technical Picture:
It was an extended phase of weakness in Oil prices from the January 15th, 2025, high at 81.01 into the March 5th, 2025, low at 65.25, a decline of 19.45%, which took prices to levels last seen in May 2023.
Subsequently, while a price recovery has materialised, it is only until recently that a more sustained period of strength looks to be developing, and only yesterday the 38.2% Fibonacci retracement of January/March weakness, which stood at 71.29, was challenged.
In fact, with signs emerging that traders with short positions are reverting to the sidelines and ‘covering positions’ ahead whatever tomorrow’s tariff announcements bring, this 71.29 resistance level gave way on a closing basis.
A close above a Fibonacci retracement resistance is not a guarantee of a more prolonged phase of recovery in price, especially when we have such significant news about to hit traders’ screens, but it does suggest scope to higher levels in price are still possible.
Next Resistance:
A break above a 38.2% retracement resistance level can open potential for a more extended phase of price strength and traders may now be focusing on 73.15/16 as the next resistance within current strength. This represents the February 20th 2025 high in price, from which fresh selling was recently seen to post new price lows and the higher 50% Fibonacci retracement level.
Next Support:
Of course, it is equally possible any reaction to the up-and-coming tariff announcement could be negative for Oil, in which case it is important to consider what are the levels that if broken to the downside within any extended phase of weakness, might again suggest increasing downside pressure in the price of Oil.
The 38.2% Fibonacci retracement of latest March strength stands at 70.36, with possibilities that if any fresh weakness sees this level give way on a closing basis, might indicate it is the oil bears are gaining a foothold once more, to expose a deeper price decline and retracement of March strength.
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