Oil Moves Higher but Resistance Brings Downside Risk

crude oil prices
crude oil prices

The price of Crude oil has settled after last week’s hurricane threat and the market will likely trade within the recent range until a further catalyst arises.

The Gulf of Mexico and Texas faced a double threat last week from Hurricanes Marco, and Laura. The former faded into a tropical storm on landfall, but Laura created more damage with large flooding in Louisiana. Crude oil prices pulled back from a bullish midweek move after the storm passed without troubling refineries and infrastructure in Texas.

There were still evacuations of Gulf oil rigs and production shutdowns in the region, which should start to feed through to oil inventories in the coming weeks. Inventories have been steadily rising from the severe glut that appeared following the coronavirus shutdowns and this should keep a floor under prices in the weeks ahead. The threat to higher prices would come from the economy, especially if the winter months bring further virus outbreaks and the threat of lockdowns.

Global growth has put a headwind on higher prices as GDP expectations for the second quarter have largely tracked expectations in the developed nations. The huge stimulus measures enacted could bring a strong bounce in economic growth in the second half of the year, but mixed data is coming out in the form of jobs and consumer confidence.

Last week’s EIA data saw oil demand 17.4 million barrels per day (mbd) – well below the 52-week average of 18.2 mbd, and a two-year low. The current dynamic in the oil market would warrant some caution at these higher levels as demand and economic growth expectations may be priced-in.

Crude Oil Technical Outlook

The move higher last week as Hurricane Laura approached Texas looked like a move to $44.00 was inevitable. Once the storm subsided, $43.50 is proving a stubborn resistance and the downside is now a risk. The trend is still upward, yet the market may seek to test the support ahead of $42.00. $41.50 would be the next target ahead of the $40.00 level.

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Crude Oil Daily Chart

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