Crude Oil Update:

• Energy markets have been worried about oversupply
• These worries have weakened somewhat, but haven’t disappeared
• Technically US crude’s uptrend remains in place

Crude Oil Prices have been supported on Wednesday by news in the previous session of a smaller-than-expected rise in United States stockpiles, although a stronger Dollar still offers headwinds.

Figures from the American Petroleum Institute showed a rise of 670,000 barrels in the week to February 2, much lower than the 1.9-million-barrel inventory build markets had been looking for before the figures. Moreover, the Energy Information Administration cut its outlook for US output growth this year by 120,000 Barrels Per Day, to 170,000, and forecast that last December’s output amazing 1.3 million BPD record wouldn’t be exceeded until February of 2025.

There was clear support for the oil price in both these releases as one of the major worries for oil bulls has been the prospect of a market oversupplied by crude from producers outside the traditional Organization of Petroleum Exporting Countries bloc running into very uncertain demand from major importers, notably China.

Reuters reported that Hamas has put forward a plan which would see a 135-day ceasefire in Gaza, with all Israeli hostages released if Israel’s forces withdraw from the territory. There was no immediate response from Tel Aviv but Israel has already said that it won’t leave Gaza until Hamas has been destroyed. Any sign of a workable truce might well see oil prices retreat, but for now geopolitics whether focused on Gaza, conflict in Ukraine or territorial disputes in the South China Sea, tend to keep energy prices elevated.

Market focus tomorrow is likely to be on Chinese inflation numbers and the bearing they might have on chances of further economic stimulus by Beijing. Economists see deflation’s grip tightening, with annualized consumer price inflation tipped to fall by 0.5%.

US Crude Oil Prices Technical Analysis

WTI Crude Oil Daily Chart

West Texas Intermediate Crude Oil Daily Chart

Prices continue to respect the lower bound of the broad uptrend channel in place since mid-September. This has been confirmed by Monday’s close above support at $72.07 which was the channel base on that day.

Near term resistance comes in at $76.79, the first retracement point of the rise from December’s lows to January’s peaks If this gives way, those peaks will be back in play. They currently offer resistance at $79.59.

Above that a trading band from late October between $80.40 and $83.50 bars the way higher to last year’s peaks. There seems little immediate danger of prices getting back up there, although the psychological $80 handle looks reachable in the next month assuming the uptrend holds.

IG’s own sentiment data finds traders bullish at current levels, to an extent (82%) which might well argue for a contrarian, bearish play. This balance should be watched as the week bows out to see how much conviction the bulls can muster.

--By David Cottle for DailyFX

https://www.dailyfx.com/news/crude-oil-prices-supported-by-us-inventory-levels-geopolitics-20240207.html