Oil gains momentum on renewed demand

Oil prices extended their gains for a third consecutive session, with WTI surpassing $73 per barrel—up from $70.30 last Friday. Buyers have returned to the market despite rising U.S. inventories, driven in part by higher gas prices in Europe.

The latest weekly data showed commercial inventories rose 8.7 million barrels after rising 3.5 the week before. US petrol stocks have been rising continuously for the past 12 weeks, adding a cumulative 44 million barrels. Although the overall level of commercial crude stocks is at the lower end of the 'working range' of the last 10 years, it would be an exaggeration to say that there is a lack of supply.

U.S. sanctions on Russia’s shadow fleet are tightening global supply, while Europe’s active gas consumption is increasing competition for energy resources. Meanwhile, drilling activity—after a long decline since late 2022—has stabilised, with production hovering near 13.5 million bpd, close to historic highs.

This shift from decline to plateau signals a change in sentiment among producers, with expectations that a potential Trump administration could be more favourable toward conventional oil compared to Biden’s policies.

That said, technical analyses of oil dynamics have yet to validate a global reversal as WTI is trading below its 50- and 200-week moving averages. The latter is an important watershed between long-term bull and bear markets, and we have been in a bear market since the second half of last year.

But there is also an important distinction. In recent years, a dip under the 200-week has been the trigger for a powerful sell-off, something we haven’t seen this time around. We can't rule out the market holding above the horizontal support line of 67 per barrel WTI. Brent crude is bouncing off the nicer round figure of $70.

The uncertainty of the oil market can be stated while trading continues in the range of $70-$80 per barrel Brent and $67-77 per barrel WTI. A fall below the lower boundary will confirm that last year’s corrective bounce has been absorbed. A consolidation above the upper boundary will confirm the importance of support, marking the start of an upward trend.