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Jim Hyerczyk

Jim Hyerczyk

Fundamental and technical analyst with 30 years experience.

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Strong Dollar, Trump’s Steel Tariffs Keep Oil Subdued


April West Texas Intermediate crude oil futures are set to close about 4 percent lower this week, its first weekly loss since the week-ending February 9. Most of the downside pressure this week can be attributed to a rise in U.S. crude oil stocks even as refineries hiked output. Additional pressure came from the U.S. Dollar’s surge to a six-week high against a basket of currencies and uncertainty over a major decision announced by President Trump regarding tariffs on imports of steel and aluminum.

EIA Report

U.S. WTI crude oil futures tumbled on February 26 after crude and gasoline inventories in the United States rose unexpectedly. A stronger U.S. Dollar and a late session sell-off in U.S. equity markets also weighed on prices.

According to the U.S. Energy Information Administration (EIA), U.S. crude inventories rose by 3 million barrels last week, versus analyst expectations for a build of 2.1 million barrels. Gasoline stocks also rose by 2.5 million barrels against expectations for 190,000-barrel drop. Distillate stockpiles, which include diesel and heating oil, fell by 1 million barrels, versus expectations for a 709,000-barrel drop.

In other news, U.S. oil production surged to an all-time high in November, topping the previous record set nearly half a century ago, government data showed on Wednesday.

In its monthly report, the EIA said that U.S. drillers pumped 10.057 million barrels a day in November. The previous record of 10.044 million barrels was set in November 1970. Yesterday’s number was a revision to last month’s report which showed November’s output jumped to 10.038 million barrels a day.

The EIA projects U.S. output will average 11.2 million barrels a day next year, positioning the nation to overthrow Russia as the world’s top producer. However, the first monthly reading for December shows U.S. output may have slipped back to 9.949 million barrels.

U.S. Dollar Impact

A stronger U.S. Dollar also contributed to the weakness in the dollar-denominated crude oil market. Crude oil demand tends to suffer when the dollar rises because it makes the asset more expensive for foreign buyers.

Prices started to tumble early in week when newly appointed Fed Chair Jerome Powell hinted the Fed could act more aggressively later this year by raising interest rates as many as four times. This would drive up the U.S. Dollar, making dollar-denominated crude oil a less-desirable asset.

Stock Market Volatility

A steep drop in U.S. equity markets also weighed on crude oil prices. Stocks are down sharply this week in reaction to the hawkish comments from Powell which drove up U.S. Treasury yields and President Trump’s announcement of tariffs on imports of steel and aluminum. Although the Trump administration believes the move will protect U.S. producers, it also raised fears of retaliation from Europe, Asia and Canada which could lead to a trade war.

Weekly Technical Analysis

(Click to enlarge)

The main trend is up according to the daily swing chart, however, momentum has been trending sideways to lower since the week-ending January 26.

A trade though $66.39 will reaffirm the uptrend. A move through $57.90 will indicate the selling is getting stronger.

The short-term range is $66.39 to $57.90. Its retracement zone is $62.15 to $63.15. The market straddled this zone for the third week in four last week before moving well below it on Thursday. Holding below this zone is helping to give the market a downside bias.

The main range is $50.19 to $66.39. Its retracement zone at $58.29 to $56.38 is the primary downside target. This zone stopped the selling at $57.90 the week-ending February 9.

Additional support is the longer-term 50% to 61.8% zone at $56.90 to $54.66.

Weekly Technical Forecast

Based on Thursday’s close at $60.99 and the early price action on Friday, the direction of the April WTI crude oil market next week is likely to be determined by trader reaction to an uptrending Gann angle at $60.69.

A sustained move over $60.69 will signal the presence of buyers. If this creates enough upside momentum, we could see a retest of $62.15 to $63.15. Look for a possible acceleration to the upside if $63.15 is taken out with strong buying volume.

A sustained move under $60.69 will indicate the presence of sellers. This move could trigger an acceleration to the downside with the first target $58.29, followed by $56.90 to $56.38.

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