Crude oil ended last week with growth finding support at key price levels, but it is unlikely to last long.
Last week, WTI tested the 200-week moving average for the fifth time since the beginning of the year, but managed to bounce back from this level. Oversold conditions accumulated in the intraday time frame and hopes of Chinese demand stimulus helped the bulls early in the week. In the second half of the week, a weaker dollar and demand for equities supported interest in risky assets such as oil.
Moreover, it was easy to see OPEC+’s desire to push oil prices higher by threatening supply shortages. We have heard such comments over the years and it is essential to recognize that they have prevented significant price volatility in oil.
U.S. weekly data show production rose to 12.4 million barrels for the second straight week, the highest level since April 2020. Commercial inventories increased by 7.9 million barrels (up 11% year-on-year). Production and inventory may increase in the short term as the driving season approaches.
At the same time, oil leaks from the Strategic Petroleum Stockpile dropped another 1.9 million barrels in the week, down 45% from a plateau a little over two years ago, with prices slightly higher than in May 2021.
Friday’s weekly data on the number of rigs in operation continued to show declining activity in the US sector. The total number (oil + gas) decreased by 7 to 687, and the number of oil rigs decreased to 552 (-4). In both cases, this is the lowest level since April 2022. So far, the decline has not hampered production growth, but it has alarmed industry officials, with oil production well below the peak of 13.1 million bpd seen in March. there is 2020.
Technically, the oil rally may not face headwinds until WTI hits $74 and Brent hits $78.5, key resistance areas that have served as support so far. The next tightest resistance is WTI at 78 and Brent at 83.5, which is near the 200-day (50-week) moving average. A rally would reclassify the current rally as a bullish reversal, but long-term vigilance is worthwhile as global demand is slowing against the backdrop of high interest rates.
