Crude oil price has been on an upward trend in the past few months. Brent, the global benchmark, has risen by more than 13%, while the West Texas Intermediate (WTI) has jumped by more than 12%. The two are trading at the highest level since March last year. Yet, there are key risks that could push the price lower in the near term.

Explaining the recent crude oil price rally

Crude oil price has risen substantially in the past few months. WTI has managed to move from $38 to the current $51 while Brent has risen from $15 to the current $55. This upward trend has happened amid the current global pandemic. 

Economists cite several reasons for the recent rally. First, OPEC Plus members agreed to slash production last year, which helped to reduce oversupply. Second, the Chinese economy continued doing well in 2020, leading to more consumption. China is the biggest consumer of oil.

Third, crude oil prices soared because of the optimism of a coronavirus vaccine. These hopes became true last year when Pfizer and BioNTech, Moderna, and AstraZeneca successfully delivered a vaccine. The thinking is that the vaccine will lead to more demand as local and international travel being resumed.

This year, the price has risen because of the surprise decision by Saudi Arabia to slash 1 million barrels of oil per day. Other OPEC Plus members will retain production at the current level instead of increasing it. 

Further, in the past four weeks, inventory figures from the US have been declining. This is usually a bullish factor for oil prices.

Key risks remain

While the price of crude oil has been rising, there are important risks that could see its nosedive in the near term.

First, while countries have started vaccinations, it seems like the number of infections is getting ahead. For example, in the United Kingdom, the number of cases has continued to soar in recent months. At the time of writing, the country has confirmed more than 3.1 million cases despite the fact that it was the first country to start vaccinations. The government is said to be considering more lockdowns.

The same story is continuing in the United States, where the number of daily cases and hospitalizations has continued rising. The pace of vaccinations has been behind expectations.

Meanwhile, the number of coronavirus cases in China is also rising. In fact, the government has ordered a lockdown in Hebei, a large province of more than 11 million people. All of this could affect demand. 

Second, crude oil prices face the risk of US production. On Friday, data by Baker Hughes showed that the number of rigs increased for seven straight weeks. This means that the production will increase sharply in the near term as these rigs get more active. Also, there is a possibility that these producers will continue boosting the rigs. 

Finally, the dollar has started strengthening because of the rising risks. This could affect the overall oil price.

WTI crude technical outlook

The four-hour chart shows that WTI has been at a steady increase in the past few months. As a result, it has moved above the 50-day and 100-day exponential moving averages. Also, the Relative Strength Index (RSI) and MACD have continued to rise. However, the two lines of the MACD have made a bearish divergence pattern. The same is the RSI. This means that the price could turn lower in the near term as bears target the next support at $50.

Explaining the recent crude oil price rally

Crude oil price has risen substantially in the past few months. WTI has managed to move from $38 to the current $51 while Brent has risen from $15 to the current $55. This upward trend has happened amid the current global pandemic. 

Economists cite several reasons for the recent rally. First, OPEC Plus members agreed to slash production last year, which helped to reduce oversupply. Second, the Chinese economy continued doing well in 2020, leading to more consumption. China is the biggest consumer of oil.

Third, crude oil prices soared because of the optimism of a coronavirus vaccine. These hopes became true last year when Pfizer and BioNTech, Moderna, and AstraZeneca successfully delivered a vaccine. The thinking is that the vaccine will lead to more demand as local and international travel being resumed.

This year, the price has risen because of the surprise decision by Saudi Arabia to slash 1 million barrels of oil per day. Other OPEC Plus members will retain production at the current level instead of increasing it. 

Further, in the past four weeks, inventory figures from the US have been declining. This is usually a bullish factor for oil prices.

Key risks remain

While the price of crude oil has been rising, there are important risks that could see its nosedive in the near term.

First, while countries have started vaccinations, it seems like the number of infections is getting ahead. For example, in the United Kingdom, the number of cases has continued to soar in recent months. At the time of writing, the country has confirmed more than 3.1 million cases despite the fact that it was the first country to start vaccinations. The government is said to be considering more lockdowns.

The same story is continuing in the United States, where the number of daily cases and hospitalizations has continued rising. The pace of vaccinations has been behind expectations.

Meanwhile, the number of coronavirus cases in China is also rising. In fact, the government has ordered a lockdown in Hebei, a large province of more than 11 million people. All of this could affect demand. 

Second, crude oil prices face the risk of US production. On Friday, data by Baker Hughes showed that the number of rigs increased for seven straight weeks. This means that the production will increase sharply in the near term as these rigs get more active. Also, there is a possibility that these producers will continue boosting the rigs. 

Finally, the dollar has started strengthening because of the rising risks. This could affect the overall oil price.

WTI crude technical outlook

The four-hour chart shows that WTI has been at a steady increase in the past few months. As a result, it has moved above the 50-day and 100-day exponential moving averages. Also, the Relative Strength Index (RSI) and MACD have continued to rise. However, the two lines of the MACD have made a bearish divergence pattern. The same is the RSI. This means that the price could turn lower in the near term as bears target the next support at $50.

WTI crude technical outlook