Crude Oil Prices Risk Forming a “Lower High” on Viral Concerns, Stockpiles Fall

CRUDE OIL PRICE OUTLOOK:

  • Oil prices trade steadily on Wednesday as investors await the FOMC meeting
  • US crude inventories fell more than expected last week, underscoring strong demand in North America
  • Lingering viral concerns may cast a shadow over the demand outlook for the rest of the world

Crude oil prices edged slightly higher during Thursday’s APAC session after falling 0.43% a day ago. Investors are holding their breath for Wednesday’s FOMC meeting and Jerome Powell’s press conference for clues about the Fed’s tapering timeline. Any surprise from the meeting may result in heightened market volatility. A more dovish-biased statement may soften the US Dollar and buoy commodity prices, whereas a hawkish one may lead to the reverse.

The America Petroleum Institute (API) reported a larger-than-expected draw in both crude and gasoline inventories for the week ending July 23rd, underpinning energy demand from North America. Crude oil stocks fell 4.78 million barrels, compared to an estimated 3.43-million-barrel drop. Gasoline inventories declined by 6.23 million barrels, compared to the previous week’s 3.31-million-barrel build.

Meanwhile, investors mulled rising viral cases caused by the Delta variant of Covid-19 around the globe and its ramifications for energy demand. In the Asia-Pacific, Australia extended lockdowns for 4 weeks through August 28th. Singapore reverted to “phase-2 circuit breaker” measures – a form of lockdown – and Japan is holding the Summer Olympic Games with state-of-emergency restrictions imposed. This may cast a shadow over the outlook for energy demand in the region.

WTI vs. DOE Crude Oil Total Inventories – 12 Months

Source: Bloomberg, DailyFX

Technically, WTI entered a technical pullback after hitting a two-and-half year high of $76.95 on July 6th (chart below). Prices have since formed consecutive lower highs and lower lows, suggesting that near-term trend may have flipped downward. An immediate support level can be found at around $70.84 – the 50-day SMA line. Initial resistance can be found at $72.43- the 20-day SMA line.

The MACD indicator is converging with the neutral line, suggesting that prices may be lack of a clear direction in the near term.

WTI Crude Oil PriceDaily Chart

Crude Oil Prices Risk Forming a “Lower High” on Viral Concerns, Stockpiles Fall

— Written by Margaret Yang, Strategist for DailyFX.com

To contact Margaret, use the Comments section below or @margaretyjy on Twitter

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