U.S. West Texas Intermediate crude oil finished higher on Thursday. The market is also up for the week, extending gains from the previous two sessions on signs of a strong economic rebound in China, the world’s top oil importer.
Traders appear to be waiting for the next catalyst to overcome worries over a rise in U.S. crude inventories and concerns over overall global demand. Possible catalysts that could trigger a breakout to the upside are an improving demand recovery in China or a weaker U.S. Dollar.
WTI and Brent crude oil is up for the week, helped by data that showed manufacturing activity in China in February grew at the fastest pace in more than a decade, adding to evidence of an economic rebound in the world’s second largest economy after the lifting of strict COVID-19 restrictions.
Meanwhile, crude oil processed by Indian refiners reached record levels in January, provisional government data on Wednesday showed, as the country boosted imports of Russian barrels that Western countries shunned.
Refinery throughput in the world’s third-largest oil importer and consumer reached 5.39 million barrels per day for January, the highest since Reuters records going back to 2009.
Bearish Factors that Could Cap Gains
Wednesday’s gains were capped by a tenth consecutive week of crude stock builds as reported by the U.S. government.
The U.S. Energy Information…
U.S. West Texas Intermediate crude oil finished higher on Thursday. The market is also up for the week, extending gains from the previous two sessions on signs of a strong economic rebound in China, the world’s top oil importer.
Traders appear to be waiting for the next catalyst to overcome worries over a rise in U.S. crude inventories and concerns over overall global demand. Possible catalysts that could trigger a breakout to the upside are an improving demand recovery in China or a weaker U.S. Dollar.
WTI and Brent crude oil is up for the week, helped by data that showed manufacturing activity in China in February grew at the fastest pace in more than a decade, adding to evidence of an economic rebound in the world’s second largest economy after the lifting of strict COVID-19 restrictions.
Meanwhile, crude oil processed by Indian refiners reached record levels in January, provisional government data on Wednesday showed, as the country boosted imports of Russian barrels that Western countries shunned.
Refinery throughput in the world’s third-largest oil importer and consumer reached 5.39 million barrels per day for January, the highest since Reuters records going back to 2009.
Bearish Factors that Could Cap Gains
Wednesday’s gains were capped by a tenth consecutive week of crude stock builds as reported by the U.S. government.
The U.S. Energy Information Administration (EIA) reported on Wednesday that U.S. crude inventories rose by 1.2 million barrels in the week-ending Feb. 24 to 480.2 million barrels, their highest level since May 2021. Analysts were looking for a 500,000-barrel gain.
The build would’ve been larger, but record exports of U.S. crude oil kept the build smaller than in recent weeks with shipments increasing to 5.6 million barrels per day (bpd) last week.
U.S. gasoline stocks fell by 900,000 barrels in the week to 239.2 million barrels, the EIA said, compared with analysts’ expectations for a 500,000-barrel rise.
Distillate stockpiles, which include diesel and heating oil, rose by 0.2 million barrels in the week to 122.1 million barrels, its most since January 2022, versus forecasts for a 500,000-barrel drop, the EIA data showed.
Another potentially bearish factor is a possible 50 basis point rate hike by the Federal Reserve in March.
US Dollar is the Wildcard and Potential Bullish Catalyst
Once the China demand recovery news plays out, traders will be looking for another catalyst. That catalyst is likely to be the U.S. Dollar.
The greenback received a boost throughout February as investors focused on additional rate hikes from the Fed. This kept a lid on oil demand but with the European Central Bank (ECB) and other central banks expected to continue to boost their benchmarks, the dollar’s gains could be capped. This could help push foreign demand for crude oil higher.
Consider the U.S. Dollar the next wildcard.
Weekly Technical Analysis
Weekly April WTI Crude Oil
Trend Indicator Analysis
The main trend is down according to the weekly swing chart.
A move through $82.89 will change the main trend to up. A trade through $70.86 will reaffirm the downtrend.
The minor trend is also down. A trade through $80.78 will change the minor trend to up. This will shift momentum to the upside. The new minor bottom is $73.80.
Retracement Level Analysis
The contract range is $40.67 to $102.99. Its retracement zone at $71.83 to $64.48 is the next major downside target and value zone.
The minor range is $70.86 to $82.89. Its pivot is $76.88.
The short-term range is $88.65 to $70.86. Its pivot is $79.76.
The main range is $102.99 to $70.86. Its retracement zone at $86.93 to $90.72 is a major upside target area.
Weekly Technical Forecast
The direction of the April WTI crude oil market the week-ending March 10 is likely to be determined by trader reaction to the minor pivot at $76.88.
Bullish Scenario
A sustained move over $76.88 will signal the presence of buyers. This could lead to a labored rally with the first target a pivot at $79.76, followed by a minor top at $80.78.
Taking out $80.78 will shift momentum to the upside. This could trigger another surge into the main top at $82.89.
Taking out $82.89 will change the main trend to up. This could create the upside momentum needed to challenge the main retracement zone at $86.93 to $90.72.
Bearish Scenario
A sustained move under $76.88 will indicate the presence of sellers. If this move creates enough downside momentum then look for a test of the support cluster at $71.83 to $70.86.
Short-Term Outlook
The key takeaway from the EIA report was that record exports kept crude oil supplies in line. A widening of U.S. crude and Brent crude spreads contributed to a record 5.6 million barrels per day in U.S. crude exports last week, which resulted in a smaller build than in previous weeks.
Bullish traders appear to be unfazed by rising U.S. crude oil inventories with the main focus on China’s recovery.
Worries over a possible 50 basis point rate hike by the Fed in March that had been supporting the U.S. Dollar were dampened on Thursday after comments by Atlanta Federal Reserve President Raphael Bostic said the Fed should stick with “steady” quarter-point rate increases for now in an effort to avoid an economic downturn.
This is important for the bullish outlook because a weaker greenback tends to drive up foreign demand for dollar-denominated crude oil.
Prices could remain rangebound but with a bias to the upside next week. Longer-term, we’re bullish but it’s probably going to take an improving demand picture from China and a weaker U.S. Dollar to launch a respectable rally.
Meanwhile, “China’s economic recovery will drive its demand for commodities higher, with oil positioned to benefit the most,” JPMorgan analysts said in a client note.
Additionally, oil prices are expected to rise above $90 a barrel toward the second half of 2023 as Chinese demand recovers and Russian output falls, a Reuters poll showed on Tuesday. Similarly, JPMorgan’s oil analysts maintained their 2023 average price forecasts on Brent at $90 a barrel.
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