LIVE MARKETS-Oil climbs near six-week highs, but clouds gather near resistance 

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OIL CLIMBS NEAR SIX-WEEK HIGHS, BUT CLOUDS GATHER NEAR RESISTANCE

Oil prices climbed on Wednesday on mounting concerns about disruptions to Middle Eastern supply routes because of escalating hostilities between the U.S. and Iran and threats to shipping by the Iran-backed Houthi militia in Yemen.

NYMEX crude futures CLc1 briefly touched $88.61 earlier in the session and were recently trading near $87.00, up about 3% on the day. The move puts crude on track for a third consecutive weekly gain and its strongest monthly advance since March.

The rally marks a sharp turnaround from earlier this month, when crude futures fell to a low of $67.04. That low came just above the upper edge of the weekly Ichimoku Cloud, currently near $66.65. The Ichimoku Cloud is a popular technical indicator used to gauge trend direction, momentum, and potential support and resistance levels.

As the recovery extends, crude has moved above the top of the monthly Ichimoku Cloud, which now sits around $86.65 — an encouraging technical signal for bulls.

However, further gains could face resistance. The lower boundary of the daily Ichimoku Cloud is currently near $90.85, making the area between $86.65 and $90.85 an important zone to watch. A failure to hold recent gains, particularly a move back below $86.65 and then the April low at $80.56, could shift focus toward a retest of sub-$70 levels.

On the upside, a decisive break above $90.85 would suggest the rally has more room to run. In that scenario, traders may look toward the upper boundary of the daily Cloud near $98.65 as the next upside target. For longer-term context, crude's March peak was $119.48.

Meanwhile, the S&P 500 energy sector .SPNY is by far the best-performing S&P 500 .SPX sector month to date and continues to lead all S&P 500 sectors this year. However, it remains closely tied to crude prices, maintaining a strong rolling 10-week correlation with futures. As a result, any reversal in oil prices could weigh on the sector.

(Terence Gabriel)

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(Terence Gabriel is a Reuters market analyst. The views expressed are his own)