Bullish momentum in the oil market has enabled WTI crude oil prices to break resistance at $110 per barrel and move towards next resistance at $116. The strong bullish momentum that has dominated the oil market has come from the news of the European Union seeking to place a ban on Russian oil importation into Europe. Russia has remained the significant source of supply in European oil to Europe and the third-largest global crude oil supplier. Insufficient suppliers to fill the gap created by this ban has pushed the price of crude oil above the significant resistance at $110, paving the way to the ATH witnessed two months ago at $115.87.
Significant improvements in US oil production to support the intended Russian ban led to an increase in the weekly prints of the American Petroleum Institute’s (API) Crude Oil Stock data for the period which ended on May 6. Hence, we saw an addition of 1.618M barrels coming from the US against the previous contraction of 3.479M. Yet many analysts insist that this improved supply cannot replace the prime position of Russia as the significant European oil.
Crude oil expects to break the all-time high experienced in March at $115.87 to convince investors that it is ready to break the next resistance at $120. If achieved, it will open up higher prices again. We might see oil prices return to their previous highs at $126.5 per barrel, primarily if the present European ban on Russian oil imposes.
On the other hand, there are chances that the oil prices might crash sooner than expected, especially if the EU fails to implement this proposed ban. To continue with the ban, the European Union will need to obtain the approval of the 27 member countries. Many EU members are already opposed to this ban. Hungary and Slovakia, for instance, have greatly opposed the move seeking a guarantee from the union for an alternative source of oil supply. For example, these two countries are largely dependent on Russian oil imports to sustain their economy. According to figures from the International Energy Agency (IEA), Hungary imported over 70,000 BPD, or 58%, of its total oil imports in 2021 from Russia. Slovakia was even higher, with over 105,000 BPD, amounting to 96% of its oil imports last year.
If this ban fails after the next EU meeting, oil prices might crash and return to $96 in the coming month.