Oil prices have fallen down in the afternoon London trading session, as the market reacts to news of a possible glut. Brent futures were at $76.97 (down -1.57%), while WTI was falat at 81.85 per barrel at press time. The market ignored news of possible extension of production cuts beyond the first quarter of the year by OPEC+ members. In addition, industry body American Petroleum Institute (API) released data showing a spike in US crude inventories.
OPEC+ agreed to cut daily output by 2.2 million barrels on a voluntary basis in Q1 of 2024. However, the slowdown in economic activity in China, coupled with increased output by non-OPEC members have negated possible gains from production cuts. API’s weekly crude inventory data showed a substantial growth in US stockpiles from 7.168 to 8.428 million barrels. Similarly, the Department of Energy reported that the Strategic Petroleum Reserve added 800,000 barrels to its inventory as of February 23rd.
Meanwhile, the dollar has risen on Wednesday on expectation of a good US GDP data. Dollar-denominated crude oil prices typically head down when the currency strengthens. Also, disruption risks in the Middle East have subsided, following talks of a possible ceasefire agreement between Israel and Hamas. The two have been at war since Hamas’ attacks on Israel on October 7, 2023. This has sparked a series of attacks by Houthi rebels on ships on the Red Sea, in response to Israel’s attacks on Gaza. The result has been delayed deliveries of some oil shipments by ships avoiding the Red Sea route. According to Goldman Sachs, this added $2 per barrel risk premium on crude oil prices.
Wednesday could prove to be a pivotal moment for oil prices, as two major macroeconomic releases will be out. The EIA will release its weekly oil inventory data, and traders will be keen to watch for signs of alignment with API data. A forecast-beating rise in the stockpile could increase the pressure on the commodity. Also, the GDP reading could have an impact on the strength of the dollar, thus impacting oil prices in the near term.
Technical analysis
The oil market faces bearish momentum, and this could spur downward action relative to the 78.50 pivot level. Seller control will test the 77.20 support, and if it breaks below it, it will target 76.80. If action goes above 78.50, the bulls will be in control. They could use the upside momentum to attempt breaking 79.00, at which point the second resistance at 79.70 will be within reach.