Crude Oil Prices Inch Up on Weaker Dollar, Production Cuts

Oil prices, charts and analysis:

• West Texas Intermediate the prices advance again.
• Reducing production from major exporters and the benefits of financing both help the price.
• The focus is on inventory data this week.

Crude oil prices rose again in Europe on Tuesday and remained well supported after a steady streak of gains since late June.

A weaker US dollar is not hurting oil among investors keen to buy dollar-denominated crude in other currencies, while extended production cuts from export giants Saudi Arabia and Russia are also supporting the market.

Another bright spot can be seen in reports that hedge funds and money managers bought both US benchmark WTI and global Brent crude in the first week of this month, to the tune of 47 million barrels. This marks a turnaround from the extreme gloom that gripped the market through the end of June.

Of course, Crude Oil will not really be ready to boom while major central banks raise interest rates in hopes of slowing economic activity, and thus inflation. Obviously, this is not an environment that is likely to see rapid energy demand.

But, while more global rate hikes are certainly to come, likely this month, energy markets seem convinced that the bulk of the measure is now behind them and that they can look forward before long to flat rates, if not actual cuts.

The backdrop is likely to remain one of general caution, given the ongoing conflict in Ukraine and the clear signs that China’s post-coronavirus recovery is in trouble. Just this week, the country was found to be on the brink of consumer price deflation, and calls for more economic stimulus from Beijing are sure to rise. The World Bank recently projected growth of just 2.1% this year for China, down from 3.1% in 2022.

Moreover, the market seems well presented, even given these production cuts. It was reported that US shale production rose 9% in the year through April compared to the same period in 2022.

So, while prices may struggle to make sustainable gains in the medium term, the focus this week will be on inventory data, with the American Petroleum Institute’s numbers due on Tuesday, and those from the Energy Information Agency a day later.

Technical analysis of US crude oil

US WTI Crude Oil daily chart

Chart compiled using TradingView

Prices once again proved reluctant to stay long below a wide trading range that extends lower from the intraday low of Dec 9 at $70.12. This range appears to be trading back higher when that level is given up, as it has happened no less than five times since mid-March. Now, this may be due to nothing more than characteristically quiet trading thanks to the northern hemisphere summer, but the level is still being watched.

The bulls are now eyeing resistance starting from May 23rd at $74.49, which they will have to take before trying the latest peak, $74.89 on June 5th. Obviously, the $75 mark is a bit of a psychological resistance. The market has been uncomfortable above that since May, and that is likely to continue, with sellers likely to exit any approach.

At some point, either that level will be above or the $70.12 support will decisively give way, but the incentive for either still seems to be there. The market still looks bullish at least in the short term.

IG’s sentiment indicator finds that 65% of respondents are still buying at current levels.

— By David Cottle for DailyFX