Best analysis

Crude oil had become somewhat more stable in recent days as investors assessed the current supply and demand forces affecting prices. On the one hand, there have been tentative signs that oil production in the US is finally responding to the falls in rig counts. The rig count falls actually accelerated once again last week as it declined by an additional 31; at just 703 they are now at their lowest level since October 2010. But on the other hand, oil inventories have been repeatedly hitting record levels since the turn of the year, which suggests that the oil market remains sufficiently supplied.

While the supply outlook appears mixed, the demand outlook for crude does not look great either following the recent slowdown of economic activity in the world’s largest consumers of oil, China and the US. Today for example saw the US GDP grew by a meagre 0.2% annualised rate in the first quarter. To say it disappointed expectations is an understatement, for the market was looking for at least a 1% growth rate. As a result, the US dollar plunged and this in turn helped to underpin some dollar-priced commodities, including crude oil.

Crude oil got an additional boost from the latest weekly inventories data.  As the API data last night had suggested crude inventories may have increased by 4.2 million barrels last week, analysts and traders alike were not feeling too optimistic about the official numbers from the EIA. However as it turned out, the EIA numbers were actually not too bad even if crude stocks rose a fresh record high of 490.9 million barrels. The weekly increase of 1.9 million barrels was not only lower than the API’s estimate but it was also lower than the consensus forecast of 2.1 million barrels.  What’s more, inventories at the storage hub of Cushing in Oklahoma decreased for the first time since November, by 514,000 barrels. As a result, oil prices surged higher as hopes grew that we may now see a period of destocking.

WTI found additional support from technical buying once the $58.25/60 resistance area was cleared. All eyes are now on the FOMC statement, due at 19:00 BST, in which the Fed is likely to deliver some dovish remarks. If seen, the dollar could fall further and this may in turn underpin the buck-denominated crude oil. Our technical view on US oil will remain bullish for as long as the bullish trend remains intact. If and when this is broken, we may then see a sharp drop in oil prices. But for now, the path of least resistance remains to the upside with $60 now being the next target for the bulls. Above this psychological barrier is the 161.8% Fibonacci extension level of the last significant downswing at $61.70. To get past these levels, oil speculators would probably need a favour or two from the Federal Reserve tonight.

Figure 1:

wti

Source: FOREX.com. Please note this product is not available to US clients

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended Content


Recommended Content

Editors’ Picks

USD/JPY pops and drops on BoJ's expected hold

USD/JPY pops and drops on BoJ's expected hold

USD/JPY reverses a knee-jerk spike to 142.80 and returns to the red below 142.50 after the Bank of Japan announced on Friday that it maintained the short-term rate target in the range of 0.15%-0.25%, as widely expected. Governor Ueda's press conference is next in focus.  

USD/JPY News
AUD/USD bears attack 0.6800 amid PBOC's status-quo, cautious mood

AUD/USD bears attack 0.6800 amid PBOC's status-quo, cautious mood

AUD/USD attacks 0.6800 in Friday's Asian trading, extending its gradual retreat after the PBOC unexpectedly left mortgage lending rates unchanged in September. A cautious market mood also adds to the weight on the Aussie. Fedspeak eyed. 

AUD/USD News
Gold consolidates near record high, bullish potential seems intact

Gold consolidates near record high, bullish potential seems intact

Gold price regained positive traction on Thursday and rallied back closer to the all-time peak touched the previous day in reaction to the Federal Reserve's decision to start the policy easing cycle with an oversized rate cut.

Gold News
Ethereum rallies over 6% following decision to split Pectra upgrade into two phases

Ethereum rallies over 6% following decision to split Pectra upgrade into two phases

In its Consensus Layer Call on Thursday, Ethereum developers decided to split the upcoming Pectra upgrade into two batches. The decision follows concerns about potential risks in shipping the previously approved series of Ethereum improvement proposals.

Read more
Bank of Japan set to keep rates on hold after July’s hike shocked markets

Bank of Japan set to keep rates on hold after July’s hike shocked markets

The Bank of Japan is expected to keep its short-term interest rate target between 0.15% and 0.25% on Friday, following the conclusion of its two-day monetary policy review. The decision is set to be announced during the early Asian session. 

Read more
Moneta Markets review 2024: All you need to know

Moneta Markets review 2024: All you need to know

VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.

Read More

Majors

Cryptocurrencies

Signatures