WTI corrects from multi-week top, slides back to mid-$79.00s confluence breakpoint

• WTI meets with some supply on Tuesday amid the emergence of some USD dip-buying.
• Optimism over firming fuel demand and Middle East tensions should help limit losses.
• The overnight close above the $79.50 confluence resistance also favors bullish traders.

West Texas Intermediate (WTI) US crude Oil prices edge lower during the Asian session on Tuesday and erode a part of the overnight strong gains to the $80.00 neighborhood, or a nearly three-week high. The commodity, however, manages to hold above the $79.50 confluence resistance breakpoint, comprising 50-day and 100-day Simple Moving Averages (SMA). 

The OPEC+ producer group reassured last week that a plan to raise supplies from the fourth quarter of this year could be paused or reversed based on market conditions. This comes on top of the latest optimism over strong fuel demand, bolstered by the International Energy Agency monthly report. Apart from this, expectations that a drawdown in US inventories will tighten the market in the second half of the year should act as a tailwind for Crude Oil prices.

Furthermore, concerns that a wider Middle East conflict will lead to potential disruption to global supplies from the key producing region validate the positive outlook for the black liquid. The Israeli military said on Sunday that intensified cross-border fire from Lebanon’s Hezbollah movement into Israel could trigger serious escalation. Israel added further that tensions with the Iran-aligned Houthi rebels in Yemen were bringing the region close to a wider conflict.

Meanwhile, Monday’s mixed macro data out of China – the world’s top crude importer – warrants some caution for bullish traders. Adding to this, the emergence of fresh buying around the US Dollar (USD), which continues to draw support from the Federal Reserve’s (Fed) hawkish outlook, might also contribute to capping gains for Crude Oil prices. Hence, it will be prudent to wait for strong follow-through buying before positioning for any further appreciating move.