U.S. West Texas Intermediate crude oil futures dipped on Thursday, putting the March futures contract in a position to finish lower for the week. Weaker-than-expected economic data and a rebound in the U.S. Dollar are being blamed for the daily weakness.
The market has been under pressure all week with the selling starting late last week on Jan. 27 when indications of strong Russian oil supply offset better-than-expected U.S. economic data, strong middle distillate refining margins, and hopes of a rapid recovery in Chinese.
Contributing to the weakness this week has been another surge in U.S. stockpiles, an interest rate hike by the Federal Reserve, worries about a global recession and China’s recovery.
However, losses may have been limited by OPEC+’s decision to roll over an output cut and an overall weaker U.S. Dollar.
Stronger Russian Supply Outlook Weighs
Sellers came in early in the week on a report showing oil loadings from Russia’s Baltic ports are set to rise by 50% this month from December as sellers try to meet strong demand in Asia and benefit from rising global energy prices.
The news prompted some analysts to say that “If Russian supply remains strong heading into next month, oil is probably going to continue to trend lower.”
Oil Dives after EIA Reports Big Builds in U.S. Crude, Fuel Stocks
WTI crude was also pressured after U.S. government data showed big builds in crude oil, gasoline…
U.S. West Texas Intermediate crude oil futures dipped on Thursday, putting the March futures contract in a position to finish lower for the week. Weaker-than-expected economic data and a rebound in the U.S. Dollar are being blamed for the daily weakness.
The market has been under pressure all week with the selling starting late last week on Jan. 27 when indications of strong Russian oil supply offset better-than-expected U.S. economic data, strong middle distillate refining margins, and hopes of a rapid recovery in Chinese.
Contributing to the weakness this week has been another surge in U.S. stockpiles, an interest rate hike by the Federal Reserve, worries about a global recession and China’s recovery.
However, losses may have been limited by OPEC+’s decision to roll over an output cut and an overall weaker U.S. Dollar.
Stronger Russian Supply Outlook Weighs
Sellers came in early in the week on a report showing oil loadings from Russia’s Baltic ports are set to rise by 50% this month from December as sellers try to meet strong demand in Asia and benefit from rising global energy prices.
The news prompted some analysts to say that “If Russian supply remains strong heading into next month, oil is probably going to continue to trend lower.”
Oil Dives after EIA Reports Big Builds in U.S. Crude, Fuel Stocks
WTI crude was also pressured after U.S. government data showed big builds in crude oil, gasoline and distillate inventories.
U.S. crude oil and fuel inventories rose last week to their highest levels since June 2021, the Energy Information Administration said, as demand remained weak.
Crude inventories climbed 4.1 million barrels in the week ended Jan. 27 to 452.7 million barrels, much steeper than the 0.4 million barrel rise that analysts had forecast in a Reuters poll. It was the sixth straight weekly build, as refining utilization declined and net imports climbed.
Fed Rate Hike Could Slow US Economic Growth
The Federal Reserve raised its target interest rate by a quarter of a percentage point on Wednesday, yet continued to promise “ongoing increases” in borrowing costs as part of its lingering battle to tame inflation.
The U.S. Dollar actually weakened on the news with traders betting the slower pace of the rate hike indicates the Fed may be nearing the end of its interest rate hiking cycle.
Crude oil is sensitive to the movement in the U.S. Dollar because it is a dollar-denominated commodity. A weaker greenback tends to drive up foreign demand for crude oil.
OPEC+ Holds Production Levels Steady
An OPEC+ panel endorsed the oil producer group’s current output policy at a meeting on Wednesday, leaving production cuts agreed last year in place amid hopes of higher Chinese demand and uncertain prospects for Russian supply.
Weekly Technical Analysis
Weekly March WTI Crude Oil
Trend Indicator Analysis
The main trend is down according to the weekly swing chart. However, momentum is trending higher.
A move through $89.89 will change the main trend to up. Taking out the main top at $91.44 will reaffirm the uptrend. A trade through $61.25 will reaffirm the downtrend.
The minor trend is up. A trade through $83.14 will reaffirm the minor trend. A move through $72.74 will change the minor trend to down.
Retracement Level Analysis
The contract range is $40.25 to $104.90. Its retracement zone at $72.58 to $64.95 is the next major downside target and value zone.
A new minor range at $70.56 to $82.66 has formed. The market is currently testing its pivot at $76.61.
The main range is $61.25 to $104.90. Its retracement zone at $77.92 to $83.08 is resistance.
The short-term range is $104.90 to $70.56. Its retracement zone at $87.73 to $91.78 is a major upside target area.
Weekly Technical Forecast
The direction of the March WTI crude oil market the week-ending February 10 is likely to be determined by trader reaction to the minor pivot at $76.61 and the Fibonacci level at $77.92.
Bullish Scenario
A sustained move over $77.92 will signal the presence of buyers. If this generates enough upside momentum then look for a weekly surge toward $83.08.
Bearish Scenario
A sustained move under $76.61 will indicate the presence of sellers. If this move creates enough downside momentum then look for a test of the support cluster at $72.74 to $72.58
Short-Term Outlook
Technically speaking, the failure to overcome the main retracement zone at $77.92 to $83.08 is a sign of weakness, especially after threatening for weeks to overtake this area and breakout to the upside.
The price action suggests traders want to probe the major support area at $72.58 to $70.56 to re-establish value. This would be a crucial test because a failure to hold $70.56 could drive prices as low as $64.95 over the near-term.
Thursday’s bearish price action suggests the market is likely to become very sensitive to the direction of the U.S. Dollar and economic reports.
Generally speaking, higher interest rates are good for the U.S. Dollar, lower rates are bad. However, we’re currently dealing with a situation where the market believes inflation has turned and should start decelerating faster, and the Fed is getting ready to wind down its interest rate hiking cycle.
Meanwhile, the Fed, while acknowledging slowing inflation, believes it remains elevated and that interest rates could continue to rise.
The disparity between what the market believes and what the Fed thinks is likely to cause some volatility in the U.S. Dollar which should influence crude oil prices. However, the initial movement is likely to be choppy and two-sided as investors seek to determine whether the oversold dollar is ripe for a counter-trend rally, or a resumption of its downtrend. This volatility could be passed along to crude oil.
Traders should also expect crude oil to become ultra-sensitive to U.S. economic data as the Fed tries to lower inflation while avoiding a recession. On Thursday, a report on U.S. industrial activity highlighted a slowing economy, which is a negative for crude oil.
The current chart pattern suggests the buying is over for now and that traders are getting ready to test the lower end of its long-term trading range.
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