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Oil bounces off three month low with help from easing US data

  • Oil bounces off the fresh 3-month low.
  • Despite geopolitical headlines, oil has kept sinking this week. 
  • The US Dollar Index trades below 105.00 and looks set to close below for this week.

Oil prices extend their decline on Friday and fall to a three-month low to levels not seen since February 26 near $76.00, erasing the previous week’s gains and losing more than 4% this week. There were plenty of headlines for Crude prices to jump up on, such as Russia planning to move its borders in the Baltic Sea and fresh missile attacks from Russia into Ukraine, which could affect the supply of crude in the markets. Unfortunately, those headlines were no match for the US Federal Reserve (Fed), which is currently killing off any hopes or prospects of early interest rate cuts, that in turn would boost demand for Crude Oil. 

Meanwhile, the US Dollar Index (DXY), which tracks the performance of the US Dollar against a basket of six major currencies, has jumped back above 105.00 after the US preliminary Purchasing Managers Index (PMI) numbers for May revealed that all sectors keep expanding, with Services leading the charge. In the PMI report, the prices component showed an uptick as well, which could filter through into an already hot Consumer Price Index (CPI) release again, and would see the DXY benefit from inflow into the Greenback again. 

At the time of writing, Crude Oil (WTI) trades at $77.45 and Brent Crude at $81.62

Oil news and market movers: US data snaps Oil price decline

  • Oil prices are jumping after a second consecutive miss on estimes for Durable Goods and severe downward revisions for the previous numbers are giving a rate cut in September some more hope. 
  • OPEC+ (OPEC members plus other oil-producing countries)  has just confirmed to Bloomberg that it will not hold its June 2 meeting in Vienna. Countries will participate in a video conference, which could point to no big decisions or changes to be announced, making it a non-event already in advance. 
  • In addition to discussing rolling over current production cuts, the production capacity per member will be reviewed ahead of the individual targets for 2025. 
  • Mexico produced nearly 6.4% less Oil in April than a year before, according to Bloomberg News. The decline means nearly 1.56 million barrels per day less. 
  • Markets have completely discarded the possibility that the Fed will not cut interest rates before the summer, and chances for a cut thereafter are even diminishing. This kills off the assumption that a boost given by rate cuts to the US economy will not take place, and translates into more sluggish Oil demand for the rest of the year. 
  • The National Oceanic and Atmospheric Administration (NOAA) has released its 2024 hurricane forecast and sees between 17 to 25 named storms and potential hurricanes for the US hurricane season ahead. Main drivers are the warm waters with the absence of El Niño. 

Oil Technical Analysis: Datadriven Oil prices

Oil prices are flirting with a three-month low to levels not seen since the end of February. The pivotal line in the sand is $75.27, where Oil prices are currently trading. With the outlook for more sluggish demand in the US and possibly in the rest of the world, the risk could be that more discounts need to be priced in, in order to keep demand balanced. Although a full unwind back to $68 does not look to be in the cards for now, a snoozing OPEC decision, which is not taking up more actions to underpin Oil prices, might see a $72.00 or $70.00 price tested over the summer.   

On the upside, a trifecta of Simple Moving Averages (SMA) is forming, with two of them falling in line with pivotal levels to have in mind. First up is the 100-day SMA at $78.72, which falls in line with the ascending green trend line as the first hurdle. Next, just ahead of $80.00 is the 200-day SMA at $79.57, near the pivotal blue line at $79.94. The last one is the 55-day SMA at $81.18, the target level once $80.00 got firmly broken. 

On the downside, the pivotal level at $75.27 is the last solid line that could support the decline. If this level is unable to hold, investors could expect an accelerated sell-off towards $72.00 and $70.00, erasing all gains for 2024. Further down, Oil price could test $68, the December 13 low. 

US WTI Crude Oil: Daily Chart

WTI Oil FAQs

WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.

Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.

The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.

OPEC (Organization of the Petroleum Exporting Countries) is a group of 13 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.