Traders Cautiously Optimistic After Major Selloff In Crude

U.S. West Texas Intermediate crude oil prices fell by 1% on Thursday after U.S. Energy Secretary Jennifer Granholm informed lawmakers that refilling the Strategic Petroleum Reserve (SPR) might take several years. Nonetheless, the market is still higher for the week and in a position to post a potentially bullish closing price reversal bottom.

Granholm's remarks raised concerns about a potential oversupply of oil, which was amplified by the Energy Department's plan to release an additional 26 million barrels as part of its congressional mandate.

Prior to Granholm's comments, oil prices had risen by approximately 1%, supported by higher gasoline prices and a weaker dollar.

Crude Oil Prices Strengthened by Weaker Dollar, Higher Gasoline Prices, and Surging Demand from China

Crude oil is currently being supported by several factors. Firstly, the U.S. Dollar is weaker, which is making oil priced in dollars more attractive to holders of foreign currencies. This is due to the Federal Reserve hinting at pausing interest rate hikes, causing the dollar index to trade at its lowest since February 3^rd.

Secondly, RBOB gasoline futures hit a 10-day high after the U.S. Energy Information Administration said stockpiles of the product fell last week by the most since September 2021. Higher gasoline demand will encourage refiners to use more crude oil to make fuel.

Thirdly, there is surging demand for oil from China, which is the world’s biggest oil importer. According to Goldman Sachs, oil demand in China has surpassed 16 million barrels per day. The bank has also forecast that international-benchmark Brent crude oil will reach $97 a barrel in the second quarter of 2024.

Oil Prices Reach One-Week High as Fed Signals Pause in Future Rate Hikes

Oil prices increased by about 1% to reach a one-week high on Thursday due to the U.S. Federal Reserve's expected small rate hike, coupled with their announcement to pause future increases. The U.S. benchmark reached its highest closing since March 14 on Wednesday.

The Fed's decision to raise interest rates by a quarter of a percentage point was accompanied by language that prompted an increase in risk appetite, which spilled over into the oil market. The U.S. dollar also fell to a six-week low, making crude cheaper for buyers using other currencies and supporting oil demand.

Oil Markets Unfazed by Increase in US Crude Stockpiles

Despite a 1.1 million barrel increase in crude stockpiles last week to a 22-month high, the oil markets remained unaffected.

The EIA's official data showed a smaller build than the 3.3 million barrel increase reported by the API. The rise in U.S. crude stockpiles since December has resulted in inventories reaching their highest levels since May 2021.

However, gasoline and distillate inventories decreased more than anticipated. Experts suggest that the surplus crude oil in storage is unlikely to disappear anytime soon.

Goldman Sachs' Jeff Currie Predicts Commodities Supercycle Driven by China

According to Jeff Currie, global head of commodities at Goldman Sachs, a commodities supercycle is expected to be propelled by China's influence and the recent capital flight from energy markets and investment, which was triggered by concerns about the banking sector.

Currie explained at the Financial Times Commodities Global Summit on Tuesday that "as losses mounted, it spilled into commodities." He further stated that such a scarring event historically takes months to recover from, with the deficit still expected to persist through June and drive oil prices upward.

Weekly Technical Analysis

Weekly June WTI Crude Oil

Trend Indicator Analysis             

The main trend is down according to the weekly swing chart. A move through $80.97 will change the main trend to up. A trade through $64.58 will signal a resumption of the downtrend.

Following a prolonged break in terms of price and time, June WTI crude oil is in a position to post a potentially bullish closing price reversal bottom on the weekly chart. This is significant because if confirmed next week, it could signal the start of a 2-3 week counter-trend rally.

Retracement Level Analysis

The contract range is $37.04 to $100.48. Its retracement zone at $68.76 to $61.27. The market is currently trading just above this zone after a successful test of $64.58 earlier in the week.  

The short-term range is $86.40 to $64.58. Its retracement zone at $75.49 to $78.06 is resistance. 

The minor range is $80.97 to $64.58. Its pivot is $73.43.

Weekly Technical Forecast

The direction of the June WTI crude oil market the week-ending March 31 is likely to be determined by trader reaction to the major 50% level at $68.76.

Bullish Scenario

A sustained move over $68.76 will signal the presence of buyers. This could create the upside momentum needed to challenge the pivot at $72.78.

Overtaking $72.78 will indicate the buying is getting stronger with $75.49 to $78.06 the next target area.

Bearish Scenario

A sustained move under $68.76 will indicate the presence of sellers. If this move creates enough downside momentum then look for a test of the major Fibonacci level at $61.27, followed by a pair of main bottoms at $59.06 and $56.09.

Short-Term Outlook

Technically speaking, the formation of a weekly closing price reversal bottom and a subsequent follow-through rally will indicate the presence of buyers. This could put the market on track for a 2 to 3 week rally. It will also solidify the importance of the support zone at $68.76 to $61.27 and its potential impact on the long-term direction of crude oil prices.

Fundamentally, if the markets can set aside the jitters over a global banking crisis then the speculative bullish traders will return to recapture the recent losses. After resetting prices, the focus will shift to the U.S. Dollar and China.

Crude oil needs a weaker U.S. Dollar to help build a support base, and increasing China demand to drive prices higher and tighten oil balances. Limited capital available for energy or commodity investments is also seen as being supportive.