Crude Oil extends recovery, WTI tests $75.50

West Texas Intermediate (WTI) US Crude Oil recovered to $75.50 per barrel in thin market trading on Thursday, regaining recently-lost ground as energy traders try to shake off looming oversupply threats to focus on rising hopes of a Federal Reserve (Fed) rate cut in the third quarter.

The American Petroleum Institute (API) and the Energy Information Administration (EIA) confirmed another sharp buildup in US Crude Oil supplies this week, with barrel counts rising steeply from previous drawdowns that failed to stem the flow of US-produced barrels. Domestic demand, which was broadly expected to rise heading into the Memorial Day holiday driving season, failed to materialize. Consumer markets were broadly unable to sop up excess production at US refining facilities, and refined petroleum products have built up downstream from raw Crude Oil production.

After years of trying to bolster global Crude Oil prices using voluntary production limits, the Organization of the Petroleum Exporting Countries (OPEC) and its extended network of allied non-member states, OPEC+, are poised to phase out voluntary production caps that have kept north of 2.2 million barrels per day out of global supply lines. OPEC+ members that have shouldered the majority of the burden of limiting Crude Oil output rely heavily on selling Crude Oil in order to balance government budgets, and OPEC+ members have grown weary of sacrificing government receipts. OPEC+ assured markets that the phase out would be data dependent, but energy markets still balked at the prospect of additional oversupply in global barrel markets, sending Crude Oil prices into the lowest levels since February.

Broader market sentiment is planted firmly into hopes of rate cuts from the Federal Reserve (Fed). Rate markets are pricing in around 70% odds of at least a single quarter point cut from the Fed in September.

WTI technical outlook

WTI has extended into a two-day recovery, climbing from a near-term bottom of $72.45, but US Crude Oil remains steeply off of recent levels, trading on the low side of the 200-day Exponential Moving Average (EMA) at $78.78.

US Crude Oil bulls are aiming to drag WTI bids back into a recent consolidation zone around the $78.00 handle, though an exhaustion play could be on the cards with the 50-day EMA declining through the long-term MA.

WTI daily chart