Caution! Oil is Bullish but Vulnerable to Correction

Fundamentally, oil continues to receive strong support from geopolitical risks in the Middle East. The Saudi-backed Yemeni government has launched operations to retake Houthi-controlled territory, while the Houthi group claims to have attacked Saudi Aramco facilities. These developments heighten the risk of disruptions to Red Sea trade routes and regional energy supplies. However, rising Middle East oil exports are beginning to temper bullish pressure, preventing the market from facing a critical supply shortage.

On the supply side, sentiment is becoming balanced. The G7 plans to release up to 100 million barrels of oil and diesel reserves over the coming months, potentially boosting supply and pressuring prices in the short term. Conversely, OPEC+ is maintaining its November production targets as export disruptions linked to the conflict persist. This means the market is contending with two simultaneous forces: additional supply from strategic reserves and constrained effective production due to geopolitical disruptions.

From a technical perspective, Brent continues to exhibit a bullish structure. During Monday's Asian trading session (Oct 5), Brent hovered around US$102–103, remaining above the 20-day, 50-day, and 200-day moving averages (MA20, MA50, and MA200). With the RSI around 63 and the MACD still signaling positivity, upward momentum remains intact; however, the stochastic indicator has entered overbought territory. Immediate resistance lies around US$102.7–103.1, while the US$101.9–102.3 range serves as a key support level.

WTI also maintains a generally bullish structure, though momentum warrants close monitoring. WTI is trading around US$91–92, with the MA20 and MA50 situated near US$91. The US$90.9–91.1 range acts as a crucial support level, while US$91.8–92 serves as the initial resistance. While the RSI remains neutral-to-bullish and the MACD positive, the stochastic indicator is already in overbought territory. So, as long as support holds, the possibility of retesting resistance remains; a break below support could trigger a deeper correction.

Oil currently retains a bullish bias, though not without risk. Middle East tensions and risks to trade routes remain key catalysts, while the OPEC+ decision to curb production provides further support. However, the release of G7 reserves and a recovery in exports could cap gains. From a technical standpoint, I see a likelihood of consolidation or a pullback before any attempt to rally again. The key this week is whether Brent can break through the US$103 level or if it falls back below the US$102 support mark.