Oil: Short-term bounce rather than new bull market

Alexander Kuptsikevich FxPro

Oil ended last week with growth, having found support at key price levels, but unlikely for long.

Last week, WTI tested its 200-week moving average for the fifth time since the beginning of the year but managed to bounce back from this level. Accumulated oversold conditions in oil on the intraday timeframe and hopes of demand stimulus in China worked in favour of the bulls at the start of the week. In the second half of the week, a falling dollar and demand for equities supported interest in risk assets, including oil.

In addition, it was easy to see the desire of OPEC+ to push oil prices higher by threatening supply shortages. It is essential to realise that we have been hearing such comments for years and that this has kept oil from experiencing substantial price swings.

Weekly data from the US showed that production rose for the second consecutive week to 12.4M BPD, the highest level since April 2020. Commercial inventories rose by 7.9M barrels (+11% y/y). As the driving season approaches, we will likely see a short-term increase in production and inventories.

At the same time, oil leaks from the Strategic Petroleum Reserve, which lost another 1.9M barrels that week, down 45% from its plateau just over two years ago with a slightly higher price than in May 2021.

Friday's weekly data on the number of rigs in operation continued to point to a decline in activity in the sector in the US. The total number (Oil+Gas) fell by seven units to 687, and the number of oil rigs fell to 552 (-4). In both cases, this is the lowest level since April 2022. So far, this decline has not hindered production growth, but it indicates caution on the part of industry participants and keeps oil production well below the maximum of 13.1M BPD we saw in March 2020.

Technically, a rebound in oil may not face headwinds until $74 for WTI and $78.5 for Brent, a significant area of resistance that has previously acted as support. The next more rigid resistance is 78 for WTI and 83.5 for Brent, around the 200-day (50-week) moving average. A move higher would reclassify the current rally as a bullish reversal, but slowing global demand on the back of high-interest rates makes it worthwhile to remain cautious in the longer term.

Author

Alexander Kuptsikevich

FxPro

Alexander Kuptsikevich, a senior market analyst at FxPro, has been with the company since its foundation. From time to time, he gives commentaries on radio and television. He publishes in major economic and socio-political media.

EUR/USD flirts with daily highs, retargets 1.1900

EUR/USD regains upside traction, returning to the 1.1880 zone and refocusing its attention to the key 1.1900 barrier. The pair’s slight gains comes against the backdrop of a humble decline in the US Dollar as investors continue to assess the latest US CPI readings and the potential Fed’s rate path.

GBP/USD remains well bid around 1.3650

GBP/USD maintains its upside momentum in place, hovering around daily highs near 1.3650 and setting aside part of the recent three-day drop. Cable’s improved sentiment comes on the back of the Greenback’s irresolute price action, while recent hawkish comments from the BoE’s Pill also collaborate with the uptick.

Gold holds above $5,000 as bears seem hesitant amid Fed rate cut bets

Gold edges lower at the start of a new week, though it defends the $5,000 psychological mark through the Asian session. The underlying bullish sentiment is seen acting as a headwind for the bullion. However, bets for more rate cuts by the Fed, bolstered by Friday's softer US CPI, keep the US Dollar bulls on the defensive and continue to support the non-yielding yellow metal as the focus now shifts to FOMC Minutes on Wednesday.

Week ahead: Data blitz, Fed Minutes and RBNZ decision in the spotlight

The US jobs report for January, which was delayed slightly, didn’t do the dovish Fed bets any favours, as expectations of a soft print did not materialize, confounding the raft of weak job indicators seen in the prior week.

Global inflation watch: Signs of cooling services inflation

Realized inflation landed close to expectations in January, as negative base effects weighed on the annual rates. Remaining sticky inflation is largely explained by services, while tariff-driven goods inflation remains limited even in the US.

Ripple Price Forecast: XRP potential bottom could be in sight

Ripple edges up above the intraday low of $1.35 at the time of writing on Friday amid mixed price actions across the crypto market. The remittance token failed to hold support at $1.40 the previous day, reflecting risk-off sentiment amid a decline in retail and institutional sentiment.