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Oil Extends Losses On Demand-Side Fears Amid Strong Dollar Upsurge

Crude oil prices fell Wednesday as the market reacted to rising inventory figures.  WTI crude was down by 0.10% to trade at $81.13 per barrel, while Brent Crude was unchanged at $85.63 at the time of writing. Russia’s move to order oil companies in the country to cut production failed to spur up prices, as investors focused on rising US stockpiles instead.

American Petroleum Institute (API) reported on Tuesday that US crude oil drillers had seen their stockpiles rise by 9.337 million barrels in the week ending March 21st. That was a substantial rise, considering that the previous reading had shown a decline of 1.519 million barrels. Furthermore, this is the first time in three weeks that the API is reporting a rise in stockpiles.

Meanwhile, the Energy Information Administration(EIA) released the official government figures on Wednesday, showing that inventories climbed by to 3.165 million barrels, beating the consensus forecast that expected a decline of 0.7 million barrels. This has added to the downward pressure on oil prices and will continue impacting the trajectory for the rest of the week.

Underlying crude oil’s struggles this week is a strong US dollar. The greenback has preserved its gains against major world currencies, with the DXY hovering around 104.00 for the past three trading sessions. The demand for dollar-denominated crude oil typically declines when the USD strengthens against other currencies, as it translates to higher buying prices.

Meanwhile, OPEC+ is not expected to make any decisions on production cuts at least until June when the current voluntary 2.2 million barrels per day cut runs its course. Elsewhere, China’s factory activities reduced for the fifth consecutive month in February, epitomizing the underlying demand-side risks. These factors will likely continue exerting downward pressure on oil in the medium term if stockpiles keep rising.

Technical analysis

Crude oil price is on a downward momentum, with the sellers in control below the 81.35 pivot mark. Support is currently at 80.40, but a continuation of control by the sellers will likely break the support and set the stage to test 80.00. Conversely, if the price moves above the pivot level, the momentum will favour the buyers, who will encounter resistance at 81.75. Extended control by the sellers at that mark will likely breach the resistance, and possibly test 82.25.