Oil Price Choppy As Market Balances US Inventory Data and Dollar Clawback
Oil has made marginal gains in the early hours of the London trading session. West Texas Intermediate (WTI) rose +0.11% above Wednesday’s closing to trade at $73.94 at 09.15 GMT, as a consolidating US dollar and perceived deadlock in Israel-Hamas talks provided tailwinds. The DXY index was at the pivot 104.00 level at the time of writing.
Oil came under pressure Wednesday afternoon after the Energy Information Adminstration (EIA) released data showing a substantially higher-than-expected rise in US oil inventories over the last week. The US oil stockpiles rose by 5.520 million barrels, far exceeding the consensus forecast of 1.7 million barrels. A rise in inventory levels is often interpreted as a sign of falling demand, hence the blip in oil prices on Wednesday afternoon.
Developments in the Middle East late on Wednesday might have provided more fodder for a bullish view of oil prices. Israel Prime Minister Benjamin Netanyahu has rejected the terms of a ceasefire proposed by Hamas. Instead, he has reiterated that Israel will pursue the war to the end, stating that a “decisive victory” is only months away. As things stand, a ground offensive by Israel in Rafah seems to be still on the cards. Such an action would most likely raise the stakes in the global oil market.
Meanwhile, there has been no major development in the Red Sea over the past two days. The US and the UK increased their attacks on Houthi rebels last week, raising fears of a further escalation in the world’s leading oil producing region. Increased military activity in the area would likely trigger a significant spike in oil prices.
The RSI is largely neutral but with a bullish undertone. This makes an upward push more likely, with the pivot at $73.45. The upward target will likely move to the $74.40 resistance level, beyond which $75.05 could be within reach. However, the bullish view will likely not hold if the price crosses below $73.45. Such a move will favour the bears, and this could push the price to the $72.85 support. A breach of that level could see second support established at $72.40.