Bullish outlook seen for WTI after breakout

WEST Texas Intermediate (WTI) oil prices have been off to a strong start in the new year, extending their gains from the last few trading sessions of 2024. The bullish price action was fuelled by a combination of the latest round of stimulus measures announced by the Chinese government and heightened demand for heating fuel caused by a severe winter storm in the US.

In a bid to revitalise its faltering economy, the latest stimulus update from Beijing said the government will sharply increase funding through ultra-long Treasury bonds this year. The move aims to spur business investment and support consumer spending, which provides a boost for oil demand in the world’s second largest economy. Meanwhile, over in the US, a major storm system blanketed a large swathe of central and eastern regions in snow and ice. This extreme weather spurred higher demand for energy as households and businesses scrambled to maintain warmth, further supporting WTI prices.

From a technical perspective, WTI oil prices have shown signs of strength recently. Mid-December saw prices breaking out above a descending triangle consolidation resistance at US$70 per barrel, a critical level that had capped prices for several weeks. The breakout was confirmed when prices successfully retested the resistance-turned-support level.

Additionally, the price gained momentum during the last two trading sessions of 2024, breaking above another key resistance level at US$72.50 per barrel on the first trading day of 2025. The Moving Average Convergence Divergence technical indicator has remained above the zero line since mid-December 2024, providing confluence for the positive short-term bullish trend.

Following the recent breakout, we are likely to see the WTI price climb further towards the next key resistance level at US$77 per barrel, supported by strong technical signals and supportive demand drivers - such as increased fiscal spending in China and elevated energy needs in the US.

The writer is research analyst at Phillip Securities Research

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