WTI crude oil futures (NYMEX: CL) are currently facing headwinds after data revealed a larger-than-expected build in US crude oil inventories for the fifth consecutive week. The Energy Information Administration (EIA) reported a 4.2 million barrel increase, surpassing market expectations of a 2.743 million barrel rise. This unexpected surge in stockpiles has raised concerns about dampened demand, potentially leading to a temporary price correction.
Adding to the bearish sentiment, market participants are cautiously awaiting the release of the US Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred gauge of inflation. Stronger-than-anticipated inflation figures could bolster the case for the Fed maintaining its hawkish stance on monetary policy, potentially keeping interest rates elevated for longer. This, in turn, could dampen economic growth and subsequently reduce demand for crude oil.
However, ongoing geopolitical tensions in the Middle East continue to provide some underlying support for oil prices. The potential for supply disruptions due to these conflicts could limit the downside potential in the near term.
Technical Analysis:
Despite the recent decline, crude oil’s technical outlook presents a potential bullish scenario. The 4-hour chart shows that the price action is currently hovering around a significant zone and is positioned above key Simple Moving Averages (SMAs), including the 20-SMA (green line), 50-SMA (blue line), and 100-SMA (orange line). This suggests a potential underlying bullish bias.
The Relative Strength Index (RSI) sits at 54.34, indicating neither overbought nor oversold conditions. However, its flat trajectory suggests a lack of clear directional momentum. Therefore, the three-month high at $79.62/BLL would come into play should the price action sustain its’ upward climb. A break above the initial resistance, at significant volume, could confirm the bullish momentum, likely bringing the $80.64/BLL and $82.25/BLL price levels into play.
However, short-term trading opportunities towards the $77.15/BLL could exist should the price action sustain a push below the zone and the 23.60% Fibonacci retracement level. A break below the $77.15/BLL price level, on significant volume, would leave the $76.05/BLL and 61.80% Fibonacci retracement level ($74.55/BLL) within the bears’ reach in the short term.
Summary
WTI crude oil is currently in a consolidation phase, with the recent price action attempting to recover after encountering headwinds from higher-than-expected US crude oil inventories and cautious market sentiment ahead of key US inflation data. The price action is currently trading above key SMAs, suggesting a potential bullish bias. However, a break below the $77.15/BBL support zone could indicate a shift in momentum towards the downside.
Sources: TradingView, Trading Economics, Dow Jones Newswire, Reuters, EIA.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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