Bullish Sentiment Builds After the IEA Boosts Demand Outlook

IEA’s Influence on Oil Demand and Price Trends

The International Energy Agency (IEA) is playing a pivotal role in shaping the bullish sentiment in the May West Texas Intermediate (WTI) crude oil market. Thursday’s upward revision for 2024 oil demand growth, marking the fourth adjustment since November, forecasts a tighter market with a demand rise of 1.3 million barrels per day. This revised outlook, coupled with the impact of Houthi attacks disrupting Red Sea shipping, underscores the IEA's significant sway on market trends.

U.S. Demand Resilience Amid Economic Shifts

The U.S. market is showing strong demand for oil, as evidenced by the significant decrease in gasoline stocks reported by the Energy Information Administration (EIA) on Wednesday. With gasoline inventories hitting a three-month low and an unexpected fall in crude stockpiles, the market demonstrates a robust demand trend. This situation is further bolstered by the U.S. government's purchase of approximately 3.25 million barrels of oil for the Strategic Petroleum Reserve (SPR), highlighting the proactive approach to domestic energy requirements.

Geopolitical Tensions Escalating Supply Concerns

Geopolitical events, especially the Ukraine-Russia conflict, are intensifying concerns about oil supply. Recent Ukrainian drone strikes on Russian refineries, notably on Rosneft PJSC’s Ryazan plant, have raised supply risks. These events, alongside OPEC+ supply cuts and variable production from non-OPEC countries, contribute to a tight and uncertain supply situation. The decline in Russia’s fuel exports and potential gasoline production cuts due to refinery damages emphasize the impact of geopolitical unrest on the global oil supply.

U.S. Oil Production Trends

The U.S. is witnessing a decline in both crude and gasoline inventories, indicating an uptick in refinery activity and demand. Despite a slight decrease in crude production from its February peak, the U.S. market shows signs of tightening. This trend, combined with major refinery outages in anticipation of the summer driving season, is a crucial factor in the current bullish market outlook.

Federal Reserve Policy Impact

The Federal Reserve's upcoming policy decisions are eagerly awaited by traders, as they can significantly influence the oil market. The possibility of a rate cut, currently seen as a 63.5% chance in June, could lower consumer borrowing costs, potentially spurring economic growth and, by extension, oil demand. This expectation of a potential dovish monetary policy adds another layer to the market's bullish outlook.

Weekly Technical Analysis

Weekly May WTI Crude Oil

Trend Indicator Analysis

The main trend is up. The next upside target on the trend indicator chart is $84.87. A move through the main bottom at $71.52 will change the trend to down. However, don’t expect an acceleration to the downside unless $68.85 is taken out with conviction.

Retracement Level Analysis

The contract range is $39.02 to $88.31. Its retracement zone at $63.67 to $57.85 is the major support zone. This area stopped the selling the week-ending June 16, 2023 at $65.18. This is a major long-term value zone.

The intermediate range is $58.73 to $88.31. Its retracement zone at $77.10 to $79.95 is resistance. The market is currently testing this area.

The minor range is $65.00 to $85.75. Its retracement zone at $73.52 to $70.03 is another value zone.

The short-term range is $88.31 to $65.18. The market is currently on the strong side of its retracement zone at $79.47 to $76.75, making it near-term support.

Weekly Technical Forecast

The direction of the May WTI crude oil market the week-ending March 22 is likely to be determined by trader reaction to the short-term Fibonacci level at $79.47.  

Bullish Scenario

A sustained move over $79.47 will signal the presence of strong buyers. If this creates enough near-term momentum then we could see an acceleration to the upside with the main top at $84.87 the next target. There is little resistance on the weekly chart until this level.

Bearish Scenario

A sustained move under $79.47 will indicate the presence of sellers. This could drive the market into the short-term 50% level at $76.75. Holding this level could create a rangebound trade. If it fails to hold as support then $73.52 to $70.03 will become the next target zone.

Short-Term Weekly Forecast

Given these fundamental and technical factors, the short-term forecast for May WTI crude oil leans towards a bullish trend. The IEA’s upward revision of the oil demand forecast is a critical factor, indicating a tighter market. The strong demand in the U.S., compounded by the geopolitical supply disruptions and strategic supply adjustments, underpins this bullish sentiment. The global economic environment, despite some slowdowns, has not markedly reduced oil demand. These conditions, along with strong refining margins and the high 3-2-1 crack spread, foster bullish market sentiments, according to oil analysts. Additionally, the attacks on Russian refineries and the consequent effect on their gasoline production add to the supply constraints, further supporting the bullish trend.

In summary, the May WTI crude oil market is set for continued growth, driven by resilient demand, geopolitical tensions, strategic supply decisions, and upcoming Federal Reserve policy actions. These elements collectively exert upward pressure on oil prices in the near term.