This week's crude oil price movements have been significantly influenced by various economic indicators and central bank policies. In the U.S., the Federal Reserve's preferred inflation gauge, the personal consumption expenditures (PCE) index, showed January inflation aligning with expectations, keeping the possibility of a June interest rate cut in play.
Despite mixed economic data supporting potential rate cuts, these adjustments are likely due to the slowing economy, affecting oil demand. Earlier reports on U.S. consumer and producer prices in February indicated persistent inflation, leading investors to revise their expectations for a rate cut from March to June.
In Europe, inflation in the Eurozone dipped, strengthening the case for the European Central Bank (ECB) to start easing interest rates later this year. High interest rates in major Western economies aim to curb inflation but may restrain economic growth and oil demand.
Supply Trends
On the supply side, U.S. crude inventories have seen a consistent increase, with a significant rise of 4.2 million barrels this week, surpassing forecasts. This build in inventories suggests a potential for oversupply in the market.
The OPEC+ producer group is considering extending voluntary oil output cuts, which could support prices. However, a Reuters survey indicated an increase in OPEC's output, with Libyan production rising notably. These developments suggest a more relaxed supply situation, potentially…
This week's crude oil price movements have been significantly influenced by various economic indicators and central bank policies. In the U.S., the Federal Reserve's preferred inflation gauge, the personal consumption expenditures (PCE) index, showed January inflation aligning with expectations, keeping the possibility of a June interest rate cut in play.
Despite mixed economic data supporting potential rate cuts, these adjustments are likely due to the slowing economy, affecting oil demand. Earlier reports on U.S. consumer and producer prices in February indicated persistent inflation, leading investors to revise their expectations for a rate cut from March to June.
In Europe, inflation in the Eurozone dipped, strengthening the case for the European Central Bank (ECB) to start easing interest rates later this year. High interest rates in major Western economies aim to curb inflation but may restrain economic growth and oil demand.
Supply Trends
On the supply side, U.S. crude inventories have seen a consistent increase, with a significant rise of 4.2 million barrels this week, surpassing forecasts. This build in inventories suggests a potential for oversupply in the market.
The OPEC+ producer group is considering extending voluntary oil output cuts, which could support prices. However, a Reuters survey indicated an increase in OPEC's output, with Libyan production rising notably. These developments suggest a more relaxed supply situation, potentially exerting downward pressure on prices.
Middle East Conflict
Brent crude has remained above $80, with the Middle East conflict having a limited effect on crude flows. Despite ongoing tensions, particularly between Israel and Hamas, the conflict is not expected to significantly disrupt oil markets this year. Some traders anticipate global supplies will keep prices around the current levels. Notably, disruptions in the Red Sea are less impactful due to alternative shipping routes.
Reuters Poll Price Forecast
Various forecasts and analyses suggest a cautious outlook for oil prices. The Reuters poll forecasts Brent crude to average around $81.13 per barrel in 2024, with U.S. crude slightly lower. Goldman Sachs predicts a summer peak of $87 per barrel for Brent, but overall, the geopolitical risk premium is modest.
OPEC+'s capacity to increase output, due to previous output curbs, is also a factor. The International Energy Agency estimates OPEC's spare capacity at 5.1 million bpd, indicating potential for increased production, which could keep market sentiment cautious.
Consumer Spending and Inflation in the U.S.
In the U.S., consumer spending showed signs of moderation, influenced by inflation and high interest rates. While spending is supported by a tight labor market, the pace is expected to slow down compared to 2023. This slowdown could affect oil demand as consumer spending is a significant driver of economic activity.
Weekly Technical Analysis
Weekly April WTI Crude Oil
Trend Indicator Analysis
The main trend turned up this week when buyers poked through the main top at $79.09. A move through the new main bottom at $71.49 will signal a resumption of the downtrend.
Retracement Level Analysis
The contract range is $38.90 to $89.19. Its retracement zone at $64.05 to $58.11 is the major support zone. This area stopped the selling the week-ending March 27, 2023 at $65.00 and the week-ending June 16, 2023 at $65.41. This is a major long-term value zone.
The intermediate range is $58.85 to $89.19. 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 is $75.38 to $72.93. Based on this week's price action, this zone is new support.
The market has been straddling both the intermediate and minor retracement zones for nearly a year.
Weekly Technical Forecast
The direction of the April WTI crude oil market the week-ending March 8 is likely to be determined by trader reaction to the intermediate 61.8 % level at $79.95 and the 50% level at $77.10. Holding between these levels will create a rangebound trade and indicate indecision or the absence of a catalyst to drive investor sentiment.
Bullish Scenario
A sustained move over $79.95 will signal the presence of strong counter-trend buyers. If this creates enough near-term momentum then we could see an acceleration to the upside with the main top at $85.75 the next target.
Bearish Scenario
A sustained move under $77.10 will indicate the presence of sellers. This could drive the market into the minor retracement zone at $75.38 to $72.93.
Oil Market Outlook for Next Week
For the upcoming week, the market will closely monitor the Federal Reserve's policy moves and economic data releases, particularly those related to inflation and consumer spending. OPEC+'s decisions on production cuts will also be crucial. Given the current supply and demand trends, along with economic indicators, it is likely that oil prices will remain around the current levels, barring any major geopolitical developments or significant shifts in economic data.
In conclusion, while there are factors supporting oil prices, such as potential rate cuts and OPEC+ policies, the overall market sentiment is tempered by rising inventories, increased OPEC output, and economic indicators suggesting slowing demand. Therefore, traders should maintain a cautious approach, closely monitoring economic and geopolitical developments that could affect the market.
Technically, although there is the potential for a breakout above $79.95 for the April WTI crude oil futures contract, the fundamental outlook suggests more of a rangebound trade. If there is not strong follow-through to the upside, prices could revisit $77.10 to $75.38, or the "sweet spot" on the weekly chart.