Light crude oil futures experienced a slight pullback on Wednesday, reversing some of the gains made on Tuesday, when prices rose by 2.43%. The market is currently holding above the crucial 50-day moving average of $70.61, which is providing immediate support.
However, futures are encountering resistance at the 50% long-term retracement level of $71.63, a barrier that has proven challenging to surpass. A significant move above this level could lead to further increases, potentially pushing prices toward the 200-day moving average of $72.97, another key resistance point. Traders are closely monitoring U.S. government oil inventory data, set to be released later today, as it could bring new volatility to the market.
As of 10:29 GMT, Light Crude Oil futures are trading at $70.73, down $1.01 or 1.41%.
Inventory Data Impacts Prices
Wednesday’s slight price decline followed a report from the American Petroleum Institute (API) indicating that U.S. crude inventories rose by 1.64 million barrels last week. This increase was much higher than the 300,000-barrel rise analysts had expected. The unexpected jump in crude stocks has put pressure on prices, especially since traders had anticipated only a minor increase.
The upcoming Energy Information Administration (EIA) report, due at 14:30 GMT, will be crucial for determining market direction. Analysts forecast an additional 900,000-barrel increase in U.S. oil supplies. If this figure exceeds expectations, it could lead to renewed selling pressure amid growing concerns about oversupply in the U.S. market.
Middle East Tensions Support Prices
Despite the negative inventory data, ongoing tensions in the Middle East continue to support oil prices. The conflict, particularly between Israel and Iran, has kept traders on alert, driving demand for crude as a safeguard against supply disruptions. Tuesday’s price increases were likely influenced by the lack of resolution following U.S. Secretary of State Antony Blinken’s visit to Israel, where he engaged in extensive discussions with Prime Minister Benjamin Netanyahu and other senior officials.
While no significant breakthroughs were reported, the potential for a prolonged conflict remains a key factor in the oil market. Analysts from ING suggest that traders are factoring in the likelihood of extended unrest, with no immediate resolution in sight. The recent confirmation of the death of Hezbollah leader Hashem Safieddine, targeted in an attack, has further heightened concerns about escalating violence in the region.
Market Outlook: Bearish Sentiment with Anticipated Volatility
The near-term outlook for crude oil prices appears bearish, especially if the EIA report confirms a larger-than-expected inventory increase. If prices fail to remain above the 50-day moving average, a decline toward the next support level of $69.21 is possible, with a minor bottom at $68.17 offering additional downside protection.
Conversely, if prices manage to break through the 50% retracement level at $71.63, a push toward the 200-day moving average at $72.97 could occur, driven by fears of disruptions in Middle East supply.
In summary, crude oil traders should brace for increased volatility, as inventory data and geopolitical developments are poised to influence price movements. A sustained rise in U.S. stockpiles could drive oil prices lower, while any escalation in Middle East tensions would likely provide significant support.
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