The June WTI crude oil futures contract witnessed fluctuations throughout the week, responding to various factors. Despite solid U.S. economic data that fueled a stronger dollar and raised expectations of an interest rate hike by the U.S. Federal Reserve in June, prices managed to climb approximately 2.68% for the week. This increase is significant considering that a stronger dollar can potentially dampen oil demand by increasing the cost of fuel for holders of other currencies.
Supply Dynamics
One of the significant factors impacting the market was the Strategic Petroleum Reserve (SPR). U.S. commercial crude oil stockpiles unexpectedly increased due to another release from the SPR. However, SPR stocks drew down for a seventh consecutive week, reaching their lowest level since September 1983. This drawdown is a result of a congressionally mandated release last year.
The Energy Information Administration (EIA) inventories also played a role in market dynamics. Crude inventories rose by 5 million barrels, contrary to analysts' expectations of a drop. Gasoline stocks fell by 1.4 million barrels, while distillate stockpiles rose by a marginal 0.1 million barrels. The four-week average of gasoline product supplied, indicating demand, reached its highest level since December 2021.
In terms of production, the EIA revised the number of drilled but uncompleted (DUC) wells in the Permian Basin, indicating higher productivity than previously estimated. U.S. oil…
The June WTI crude oil futures contract witnessed fluctuations throughout the week, responding to various factors. Despite solid U.S. economic data that fueled a stronger dollar and raised expectations of an interest rate hike by the U.S. Federal Reserve in June, prices managed to climb approximately 2.68% for the week. This increase is significant considering that a stronger dollar can potentially dampen oil demand by increasing the cost of fuel for holders of other currencies.
Supply Dynamics
One of the significant factors impacting the market was the Strategic Petroleum Reserve (SPR). U.S. commercial crude oil stockpiles unexpectedly increased due to another release from the SPR. However, SPR stocks drew down for a seventh consecutive week, reaching their lowest level since September 1983. This drawdown is a result of a congressionally mandated release last year.
The Energy Information Administration (EIA) inventories also played a role in market dynamics. Crude inventories rose by 5 million barrels, contrary to analysts' expectations of a drop. Gasoline stocks fell by 1.4 million barrels, while distillate stockpiles rose by a marginal 0.1 million barrels. The four-week average of gasoline product supplied, indicating demand, reached its highest level since December 2021.
In terms of production, the EIA revised the number of drilled but uncompleted (DUC) wells in the Permian Basin, indicating higher productivity than previously estimated. U.S. oil production dropped slightly, while refinery crude runs increased, suggesting a potential tightening of crude supplies.
Demand Dynamics
The Federal Reserve's interest rate hike campaign and its potential impact on the economy were closely watched. U.S. inflation showed no signs of cooling fast enough to allow the Fed to pause its rate hike campaign, according to Fed policymakers. The possibility of an interest rate hike raises borrowing costs, which can slow the economy and reduce oil demand.
Debt ceiling talks also influenced market sentiment. President Joe Biden and top U.S. congressional Republican Kevin McCarthy emphasized their determination to reach a deal to raise the federal government's debt ceiling. Failure to do so could lead to the government running out of money to pay its bills as soon as June 1. Concerns over a potential debt default causing a recession added to market uncertainty.
Additionally, developments in China, the world's largest oil importer, impacted oil prices. Blue-chip stocks in China slipped as the country's industrial output and retail sales growth fell short of forecasts, signaling a potential slowdown in the economic recovery. China's economic performance has a significant impact on global oil demand.
Weekly Technical Analysis
Weekly June WTI Crude Oil
Trend Indicator Analysis
The main trend is down according to the weekly swing chart. It turned down last week when sellers took out the previous main bottom at $64.58.
A trade through $63.64 will reaffirm the downtrend. A move through $83.38 will change the main trend to up.
Retracement Level Analysis
The contract range is $37.04 to $100.48. Its retracement zone at $68.76 to $61.27 is the major support. The market tested this area successfully two weeks ago at $63.64, with enough buying coming in to reestablish the zone as support.
The minor range is $83.38 to $63.64. Its retracement zone at $73.51 to $75.84 is resistance. It stopped the rally last week at $73.89 and this week at $73.26. The market would have to overcome this zone to get excited about the upside potential
Weekly Technical Forecast
The direction of the June WTI crude oil market the week-ending May 26 is likely to be determined by trader reaction to the minor 50% level at $73.51.
Bullish Scenario
A sustained move over $73.51 will signal the presence of buyers. This could lead to a quick test of the minor Fibonacci level at $75.84. Overcoming this level could trigger an acceleration to the upside with the resistance cluster at $82.06 - $83.38 the next target.
Bearish Scenario
A sustained move under $73.51 will signal the presence of sellers. This could lead to a retest of the major 50% level at $68.76. This level has to hold or prices could collapse into the support cluster at $63.64 - $61.27.
Short-Term Outlook: Traders in "Wait-and-Watch" Mode Amid Volatility
Overall, the crude oil market experienced price fluctuations driven by a combination of factors such as the strength of the U.S. dollar, interest rate hike expectations, debt ceiling talks, EIA inventories, production levels, and economic performance indicators from major economies like China. Investors remained cautious, resulting in price adjustments and a "wait-and-watch" mode as they awaited further evidence of a debt ceiling deal and assessed the impact of these factors on oil demand and supply.
In the short term, the crude oil market is likely to continue experiencing volatility as investors closely monitor the progress of debt ceiling negotiations, economic indicators from major economies, and any developments in supply dynamics. The outcome of these factors will shape the future direction of oil prices.
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