CRUDE OIL ANALYSIS & TALKING POINTS

• USD looks to Fed for guidance.
• OPEC+ stands firm on supporting oil prices.
• Key inflection point being tested as 200-day MA comes into focus.

CRUDE OIL FUNDAMENTAL BACKDROP

WTI crude oil has enjoyed a largely positive week ahead of the Federal Reserve rate decision next week where optimism around a possible peak in the interest rate cycle. Markets (refer to table below) are pricing in with almost 100% certainty a 25bps hike (which I do not expect to change) but forward guidance from the Fed will be key for short-term direction.

IMPLIED FED FUNDS FUTURES

Source: Refinitiv

From a crude oil perspective, Baker Hughes rig counts showed yet another decline thus impacting supply-side concerns contributing to crude oil upside. Crude oil stock change data from both the API and EIA missed estimates but still printed negative in conjunction with optimism around the Chinese economy by way of added stimulus resulted in further price appreciation for crude oil. Despite the fact that the USD has been strengthening (a traditionally inverse relationship with crude oil), the aforementioned oil specific factors have negated this negative influence.

OPEC+ Ministers reiterated their agility and flexibility at the OPEC International Seminar stating that they are constantly monitoring market dynamics and would take any necessary measures to bolster the oil market.

The week ahead is filled with high impact economic data (see calendar below) other than the FOMC announcement with focus on the Fed’s preferred measure of inflation (core PCE price index) that could follow the previous CPI report revealing lower inflationary pressures on the US economy. Should this actualize, crude oil prices may receive another push from a weaker US dollar.

ECONOMIC CALENDAR (GMT +02:00)

Source: DailyFX economic calendar

TECHNICAL ANALYSIS

WTI CRUDE OIL DAILY CHART

Chart prepared by Warren Venketas, IG

Price action on the daily WTI crude chart above has bulls testing the 200-day moving average (blue) in conjunction with channel resistance (black) that has held since August 2022. With the Relative Strength Index (RSI) near overbought levels it could be suggestive of yet another pullback lower as has been the case in early April. This brings the 75.00 psychological handle into focus from a bearish perspective. Bulls will look for a confirmation close above this major resistance zone that could then bring into consideration the 80.00 level.

Key resistance levels:

• $80.00
• Channel resistance
• $77.30
• 200-day MA

Key support levels:

• $75.00
• $72.50

IG CLIENT SENTIMENT: BULLISH

IGCS shows retail traders are NET LONG on Crude Oil, with 55% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment; however, due to recent changes in long and short positioning we arrive at a short-term upside disposition.

Contact and followWarrenon Twitter:@WVenketas