US Crude Oil Prices and Analysis

• US crude is back close to five-month highs
• Better economic data from China, and the US have buoyed hopes of a more balanced oil market
• OPEC and Jerome Powell will top Wednesday’s bill

Crude Oil prices remained close to five-month peaks on Wednesday as markets looked toward a meeting of key producers at which production cuts are expected to remain in place.

The Organization of Petroleum Exporting Countries will convene later for a scheduled meeting. Its delegates are likely to be content with recent oil-market action, which has seen prices rise consistently since December. Forecasters think they’ll be inclined to stick with the price-boosting output reductions currently in place.

Signs of economic vigor in both the United States and China have underwritten hopes for a genuine near-term increase in energy demand. This in turn has broadened optimism that what might have been a heavily oversupplied oil market will come more into balance. This prospect has helped the publicly traded oil majors outperform markedly this year, even giving Big Tech a run.

Meanwhile, conflict between Israel and Hamas retains the potential to restrict oil supply from the Middle East, either via the conflict itself spilling over to other regional powers such as Iran or via the consistent attacks on shipping by Yemeni Militants. The ongoing war in Ukraine has seen Russian energy infrastructure targeted. Russia remains a major oil exporter despite heavy Western sanctions.

Of course, higher oil prices will feed into the inflation mix at a time when broader markets, and Western consumers, are hoping for tamer prices and near-term interest rate cuts. Big Oil’s bonanza could turn out to be central banking’s headache. With that in mind, the next major trading event is likely to be Federal Reserve Jerome Powell’s next speech, which will come as European markets are winding down on Wednesday.

US Crude Oil Technical Analysis

West Texas Intermediate Benchmark Crude Daily Chart

Prices’ latest surge has taken them above both their previously dominant uptrend channel and, much more significantly, a downtrend line that had capped the market since it peaked in mid-June 2022 at $123/barrel.

Given the speed and magnitude of recent gains, it’s not a stretch to imagine that this rally is getting a little tired, even if that doesn’t mean that major falls are in the offing. Sure enough, WTI’s Relative Strength Index now sits uncomfortably above the 70.0 level which signals a significantly overbought market. It stood at 71.8 on Wednesday morning.

This doesn’t have to presage a turnaround, but it is likely to mean that the market pauses for breath, and where it does so is likely to be important. That downtrend line now offers some support at $84.04 and might come back into play if the psychological prop of $85 doesn’t survive on a daily or weekly closing basis. There is also important retracement support close by at $83.05.

Still, momentum remains firmly with the bulls and seems likely to continue to do so even if some profit-taking stunts the current rally.

--by David Cottle for DailyFX

https://www.dailyfx.com/news/us-crude-oil-prices-surge-as-market-seems-sure-opec-cuts-will-stay-put-20240403.html