The deeper meaning of crude oil: supply and demand reversal behind the technical breakthrough of 59

Technical signals indicate a rebound, WTI crude oil poised for breakout

WTI crude oil has recently shown clear signs of a turning point. The daily chart demonstrates strong momentum, with crude oil rising for two consecutive days, gaining 1.58% on Monday (December 29), breaking above the $57.0 level and briefly climbing to $58.45. The AO momentum indicator shows increasing bullish energy, which is particularly rare after a sustained decline since June. Once it breaks through the key resistance at $59.0, there is potential to challenge levels of $61.5 and even $64.5. Conversely, if it falls below the support at $57.0, the downtrend may continue.

Geopolitical escalation and supply disruptions intensify

The main driver behind the oil price rally is ongoing uncertainty on the supply side. The Russia-Ukraine situation heated up again at the end of the month—Ukraine deployed 91 drones attempting to attack the Russian presidential residence, though all were intercepted. Russia’s Foreign Minister subsequently announced confirmed countermeasures and timing. While Russia claims it will not exit the ceasefire negotiations, it indicates a shift in its stance on the agreement. Zelensky denied related accusations, stating Russia is creating excuses for continued military actions.

This back-and-forth indicates that the Russia-Ukraine conflict remains unresolved. The current market focus is on the 20-point peace plan, which includes ceasefire, security guarantees, standing military forces, investment funds, and presidential elections. However, territorial division and nuclear power plant operations remain difficult obstacles—Ukraine insists on maintaining 800,000 troops and military presence in Donbas, which conflicts with Russia’s military objectives. Most market participants expect negotiations to take several months, and the short-term outlook for a ceasefire remains bleak.

Meanwhile, the US has escalated actions regarding Venezuela. Trump confirmed that US forces launched strikes against Venezuelan facilities, marking the first known ground attack. If US military intervention deepens and threatens Venezuela’s oil production capacity, supply-side uncertainties will increase.

Supply-demand reversal imminent, market logic behind crude

The deeper meaning of crude oil is that it is not only an energy commodity but also a barometer of global economic expectations. Currently, the market widely anticipates a global oil surplus through 2026, with the International Energy Agency estimating an annual excess of 4.09 million barrels per day. However, OPEC+ announced a pause on production increases in Q1 2026, which in a sense signals oil-producing countries’ optimism about future demand.

This shift is driven by positive macroeconomic signals. US trade tariffs are expected to ease in the new year, and the Federal Reserve remains on a clear easing path. Morgan Stanley predicts the US economy may experience an “unemployment productivity boom”—accelerated productivity sustaining growth, while a weak labor market suppresses wages and inflation, paving the way for the Fed to cut rates sharply amid low inflation concerns.

A weakening dollar combined with stimulative policies is expected to accelerate economic recovery in major energy-consuming countries like China. This suggests a transition from a scenario of severe oversupply to one of constrained supply and recovering demand, with the potential for significant rebound in oil prices as the market’s expectations shift.

Market outlook and trading guidance

Technical and fundamental factors are converging. If WTI crude stabilizes and breaks above $59.0, the subsequent rebound could reach $61.5-$64.5. The key support level is at $57.0; a break below this warrants caution for further downside. In the short term, the Russia-Ukraine situation, geopolitical conflicts, and global demand recovery expectations will continue to dominate oil price movements.