Oil prices are poised for a rebound to $78 after a sharp downturn, with West Texas Intermediate (WTI) US crude prices nearing their lowest levels in nearly two months. The market reacted negatively to news that Iran intends to increase its production by between 300,000 and 400,000 barrels per day this year, as reported by Bloomberg on Wednesday. Iranian Oil Minister Javad Owji confirmed the plan on state TV, setting the stage for potential upheaval at the upcoming OPEC meeting, where extending production cuts is under discussion.
Simultaneously, the US Dollar Index (DXY) is strengthening this week, marking gains for the third consecutive day, in tandem with the USD/JPY pair. The Japanese Yen (JPY) has already retraced half of the gains it made following Japanese interventions over the past two weeks. The prevailing bullish sentiment surrounding the US Dollar (USD) may continue to exert pressure on crude oil prices.
At the time of reporting, Crude Oil (WTI) is trading at $77.83, while Brent Crude stands at $82.09.
Oil news and market trends: EIA data prompts reassessment
At 14:30 GMT, the Energy Information Administration (EIA) released this week’s Crude Stockpile figures. The previous week witnessed a build of 7.265 million barrels, followed by a drawdown of 1.326 million barrels. The American Petroleum Institute (API) reported on Tuesday that US Crude Inventories increased by 509,000 barrels for the week ending May 3. Bloomberg indicates that derivatives such as Cushing, Gasoline, and Distillates also experienced builds in their respective segments.
The Energy Information Administration (EIA) issued a statement on Wednesday forecasting a balanced oil market for 2024, attributing the equilibrium to non-OPEC countries filling the gap left by OPEC’s production cuts, as reported by Reuters. Bloomberg Intelligence analysts Will Hares and Salih Yilmaz noted in a report on Wednesday that OPEC+ (Organization of the Petroleum Exporting Countries and allies) has ample justification to extend its production cuts, citing the recent decline in oil prices from $87.12 on April 5 to $77.01 on Wednesday.
Oil Technical Analysis: Minor drawdown fails to signal significant reversal
Oil prices continue to cool as the anticipated interruptions in oil production from the Middle East have yet to materialize. Traders appear weary of factoring in a risk premium for a scenario that has not materialized, leading to some capitulation in oil prices. The $75.28 mark seems to be the only substantial support level preventing oil from dipping to $70.00.
However, a reversal could materialize once oil prices climb back above $78.07, with the 100-day Simple Moving Average (SMA) and the upward trending green line from December serving as support. Resistance levels to watch on the upside include the 200-day SMA at $79.76 and the 55-day SMA at $81.12, where profit-taking may occur. In the longer term, $87.12 remains a significant level on the upside.
On the downside, the pivotal level at $75.28 represents the final significant support before a potential accelerated selloff towards $72.00 and $70.00. A breach of this level could signal the relinquishing of all gains made in 2024, potentially testing $68, the low from December 13th.