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Crude Oil - Oil Inventories Approach

The price of Crude oil has somewhat confused traders over the past week, but it has actually followed the traditional trend theory of impulse waves followed by corrective waves. The price of oil hit a 13-month high last week but has fallen again over the past 5 trading days. For now, the decrease has only formed a retracement in the longer term trend.

The price is now hovering around the previous resistance level which is now acting as a support point. The level of $115.71 has been in force as a support level since 6th June and traders are now waiting for confirmation as to whether the price will be able to break below this level or correct back upwards to continue the upward trend.

Crude Oil - 15.06.2022.jpg

Currently the price is being influenced by interest rate developments not only in the US but also in other large economies such as in India and the Eurozone. Higher interest rates have the power to potentially dampen demand as Central Banks purposely attempt to lower prices. In addition to this, the market will continue monitoring the supply side including this afternoon’s Oil Inventories which are predicted to be lower than the previous month.

Up until recently, economists and analysts have been forecasting that the US regulator would increase the interest rates by 50 basis points this month. However, after the release of strong data on the Consumer Price Index for May last Friday, more investors expect a change of 75 basis points. This potentially puts pressure on the level of demand for oil. The European Central Bank also called an emergency meeting of major banking officials. Traders have interpreted this as a sign that the Fed is likely to become more hawkish and that the ECB may also look to raise interest rates at a faster pace.

Last month, the inflation in the US accelerated from 0.3% to 1.0%, which exceeded the average market forecasts of 0.7%. The value has renewed 40-year highs, reaching a new peak at 8.6% YoY, while in April, the growth was 8.3%.

Additional pressure on the oil prices have arisen by reports that the chairman of the US Senate Finance Committee, Ron Wyden, plans to pass a law establishing a 21% income tax on excess profits of oil and gas companies with an annual income of more than $1 billion. Analysts perceive this as excessive in these conditions and are not yet certain whether a law of such will be able to pass.

In other developments, there have also been reports that Libya has almost stopped oil production due to the political crisis in the east of the country. Market losses are estimated at 1.1 million barrels per day, although last month's production averaged 1.2 million barrels. Libya’s Oil Minister Mr Aoun has advised that more or less all fields in the country are currently closed. In turn, the limitation of oil production can lead to a lack of supply, which is already a known issue. This is also something that traders will be following closely.

The price movement in the meantime remains lower than the daily price open as well as lower than yesterday’s price range. Traders are waiting for further confirmation from this afternoon’s oil inventories as well as interest rate announcement.

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