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Oil Still Stuck in Range for Now
Oil prices have seen a much quieter week so far with crude futures holding within last week’s range for now. A stronger US Dollar has caused some downside pressure in crude this week though prices appear to be recovering nicely on Thursday. We’ve been without a COT update since Jan 27th so we’re yet to get a glimpse at how institutional traders have been adjusting their positions in the intervening weeks. However, given that price action has been rather tepid we’re likely not missing out on much.
EIA Reports Huge Inventories Build
The big news for crude markets this week was the Energy Information Administration’s latest weekly update. The EIA reported a huge 16.3-million-barrel surplus last week. The increase takes crude stocks back up to their highest level since January 2021. However, price action was surprisingly quiet given the unusually large reading, this is due to the figure being attributed to EIA adjustments in how it records crude supply, as such the spike has been viewed as a one off.
IEA Lifts Demand Outlook
The other big story of the week has been the upward revision to global demand forecasts from the International Energy Agency. The IEA has lifted its demand outlook for 2023, citing the return of Chinese demand growth on the back of the country reopening its borders this year. Additionally, the IEA forecasts that there could be a supply deficit later in the year linked to reduced output from OPEC and other key suppliers, including Russia. Focusing on China, the EIA said it expects the world’s second largest economy to account for almost 50% of global oil demand this year.
OPEC Lifts Demand Outlook
This comes on the back of OPEC this week also raising its demand outlook for 2023. The group now forecasts oil demand to rise by 2.3% globally, again citing the reopening of the Chinese economy as the main driver. However, OPEC did not that the pace and scale of the Chinese recovery would be key to determining the demand growth for oil and therefore the impact on prices.
Looking ahead
The key for oil prices appears to be the story coming out of China. If indicators start to gain upward momentum and demand picks up, oil prices look poised to breakout. However, if the recovery proves more sticky, especially if the Fed is also seen sticking with rate hikes for longer, this might keep oil prices constrained near-term.
Technical Views
Crude Oil
For now, crude prices continue to hold within the upper portion of the 72.61 – 81.40 range with flattened momentum studies reflecting the lack of conviction. While above 76.49, however, the focus is on an eventual break higher with 85.53 the next big level for bulls to note and a retest of the broken bull trend line coming in just ahead.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.