US oil prices rallied overnight because Saudi Arabia and its Gulf Arab allies launched air strikes in Yemen. While Yemen is not a major producer of crude oil, their location is critical to the passage of Middle East oil shipments to Europe.
Price action on the 60-minute oil chart shows that recent rally extending back to the March 17th low has taken price over $10 higher to last night’s high of $52.48. While price may remain bid if geopolitical risks escalate, the oversupply issue is likely to cap this rally.
Early in NY, price has been under pressure and may find tentative support from the $50 handle. If downward momentum prevails and breaks below the medium-term trendline and 50-pd SMA, we could see a quick fall towards the January low region of $46.00. Critical support will remain the noted low of $42.41.
The trade: Sell oil at $51.50, with a stop loss at $52.50 and take profit at $47.50. The risk/reward ratio is 1:4
Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading