Oil rebounds strongly after House votes through debt-ceiling bill, Fed to pause hikes

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• Oil price recovers marginally after the House of Representatives votes through the debt-ceiling extension bill on Wednesday evening. 
• Gains are capped by higher-than-expected inventory levels. 
• Several Fed officials signal a “pause” may be appropriate at June meeting, though peak rate may be higher, leading to US Dollar weakness. 

Oil price trades higher in the $70s (Brent in the $74s) on Thursday after making a recovery from just above $67, reached the day before when sellers dominated the market. The rebound initially came after the US debt-ceiling extension bill was successfully voted through the House of Representatives, late on Wednesday evening. Oil price gained further support after several US Federal Reserve (Fed) officials said they thought interest rates should be left as they are at the next Fed meeting, which weighed on the US Dollar. Those gains were capped after data from the American Petroleum Institute (API) showed a larger-than-expected rise in Oil inventories, indicating ample supply. Official government figures from the Energy Information Adminstration (EIA), on Thursday also showed a higher-than-expected level of inventories – though still down from the previous week.

Oil news and market movers 

• Oil recovers from the deep trough it fell into midweek after US Congressmen voted through the debt-ceiling extension deal, relieving investor fears that a rebel faction might derail the progress of legislation.
• The drama now moves to the Senate where a final vote on the agreement is expected before the end of Friday. 
• Gains were capped by data from the API on Wednesday, showing a rise in stocks of 5.2M barrels in the week of May 26 from the almost 6.8M fall in the previous week. 
• This was backed up by EIA data showing a rise of 1.6M barrels when 0.7M had been forecast from a previous 1.8M. 
• Uncertainty over whether the Fed will hike or hold at the June 14 meeting shifted towards holding on Wednesday after Fed’s Philip Jefferson said he thought a pause before more hikes later might allow the economy time to digest current tightening and avoid bank stress. 
• Expectations of a pause will weigh on the US Dollar, which is bullish for Oil price. 
• Jefferson’s view of ‘pausing’ in June was backed up by Philadelphia Fed President Patrick Harker. 
• Cleveland Fed President, Loretta Mester, however, said she saw no “compelling” reason to pause, in an interview with the Financial Times on Wednesday. 
• Weak US Manufacturing PMI data for May, released on Thursday has further pressured the US Dollar, giving a lift to Oil.  
• The CME FedWatch tool, which provides an insight into the market view of the probability of future rate hikes, has flipped from previously showing odds favoring a 0.25% hike in June to an over 60% chance the Fed will leave rates unchanged.   
• Two of OPEC+’s largest members, Russia and Saudi Arabia, appear to be clashing over policy ahead of the next OPEC meeting on June 4. 
• According to sources in Riyadh, the Saudis are unhappy with the way Russia is allegedly flaunting quota cuts agreed at the October meeting, a report on Oilprice.com says. 
• Although there is no official data available on Russian production, shipping data appears to corroborate the allegation they may have increased their Oil exports despite the OPEC+ agreement to cut. 
• Last week, representatives of the two countries gave conflicting messages about the likely trajectory of the up-and-coming OPEC+ meeting. 
• Saudi Oil Minister Prince Abdulaziz bin Salman seemed to imply OPEC+ might cut production quotas when he warned speculators (interpreted as short-sellers) to “watch out”, and expressed support for OPEC’s October decision to cut supply. 
• On the other hand, Russia’s Energy Minister, Alexander Novak, played down the idea of production cuts, saying “I don’t think that there will be any new steps, because just a month ago certain decisions were made regarding the voluntary reduction of oil production by some countries.” 

Crude Oil Technical Analysis: Price bounces off support from 200-week SMA

WTI Oil price continues to decline as the longer-term bearish trend extends. Given the old saying about the trend being your friend, this favors short sellers over longs. WTI Oil is trading below all the major daily and weekly Simple Moving Averages (SMAs) but has found support at the 200-week SMA at $66.90 from where it is making an intraday recovery. 

WTI US Oil: Weekly Chart

Oil price has decisively broken below the May 22 lows of $70.65 as well as the $69.40 May 15 lows. Only the 200-week SMA now stands in the way of further losses. If it breaks below that too, it could lead to further weakness down to the year-to-date (YTD) lows of $64.31. 

WTI US Oil: Daily Chart

A break below the YTD lows would reignite the downtrend, with the next target at around $62.00, where trough lows from 2021 will come into play, followed by support at $57.50.

Oil price needs to climb back above the $74.70 May 24 highs to raise doubts about the dominant bearish trend. 

Such a break might lead to a potential target in the $79.70s, which roughly coincides with the 200-day SMA and the main trendline for the bear market, heightening its importance as a key resistance level. 

The long hammer Japanese candlestick pattern that formed at the May 4 (and YTD) lows is a sign that Oil price may have formed a strategic bottom at that level.