Will Waning Gasoline Demand Drag Oil Prices Down?

West Texas Intermediate Crude Weekly Analysis

This week's crude oil market has been marked by several significant events influencing May West Texas Intermediate (WTI) futures. The trends observed ranged from economic policy decisions to geopolitical developments, each playing a crucial role in shaping the market's direction.

Declining Gasoline Demand

One of the primary factors impacting crude oil prices this week was the unexpected decline in U.S. gasoline demand. According to the U.S. Energy Information Administration, gasoline product supplied, a key measure of demand, fell below 9 million barrels. This reduction is significant as gasoline demand has been a cornerstone supporting recent oil price rallies. The decline suggests a potential overvaluation in gasoline markets, indicating that the bullish sentiment might be waning.

Potential Impact of Ceasefire in Gaza

Geopolitical events also played a role in shaping the oil market's trend. The United States drafted a U.N. resolution for a ceasefire in Gaza, aiming to facilitate the exchange of Israeli hostages and Palestinian detainees. This development, while primarily a diplomatic initiative, has repercussions in the oil market, potentially easing tensions in a region central to global oil supply, thus exerting downward pressure on prices.

Federal Reserve's Monetary Policy

The Federal Reserve’s monetary policy continues to influence market perceptions. This week, the U.S. central bank held interest rates steady, coupled with an outlook for three rate reductions within the year. Lower interest rates can stimulate economic growth, which in turn could increase oil demand. However, the actual impact of these rate cuts will depend on broader economic trends and their influence on energy consumption.

Weekly Technical Analysis

Weekly May WTI Crude Oil

Trend Indicator Analysis

The main trend is up. The next upside target on the trend indicator chart is $84.87. A move through the main bottom at $71.52 will change the trend to down. However, don’t expect an acceleration to the downside unless $68.85 is taken out with conviction.

Traders are witnessing volatile price action the week-ending March 22, with the market extending its current rally earlier in the week then threatening to form a potentially bearish closing price reversal top late Thursday. Although this is not a trend changing event, it does indicate the selling is greater than the buying at current price levels, strongly suggesting that speculators would rather “buy the dip or value” instead of chasing news driven rallies.

Retracement Level Analysis

The contract range is $39.02 to $88.31. Its retracement zone at $63.67 to $57.85 is the major support zone. This area stopped the selling the week-ending June 16, 2023 at $65.18. This is a major long-term value zone.

The intermediate range is $58.73 to $88.31. Its retracement zone at $77.10 to $79.95 is resistance. The market is currently testing this area.

The minor range is $65.00 to $85.75. Its retracement zone at $73.52 to $70.03 is another value zone.

The short-term range is $88.31 to $65.18. The market is currently on the strong side of its retracement zone at $79.47 to $76.75, making it near-term support.

Weekly Technical Forecast

The direction of the May WTI crude oil market the week-ending March 29 is likely to be determined by trader reaction to the short-term Fibonacci level at $79.47.  

Bullish Scenario

A sustained move over $79.47 will signal the presence of strong buyers. If this creates enough near-term momentum then we could see an acceleration to the upside with the main top at $84.87 the next target. There is little resistance on the weekly chart until this level.

Bearish Scenario

A sustained move under $79.47 will indicate the presence of sellers. This could drive the market into the short-term 50% level at $76.75. Holding this level could create a rangebound trade. If it fails to hold as support then $73.52 to $70.03 will become the next target zone.

Short-Term Weekly Forecast

Looking forward, the immediate outlook for WTI crude is shaped by a convergence of the critical fundamental elements.  The declining gasoline demand in the U.S. suggests a potential shift in the domestic energy market, possibly leading to reduced pressure on crude prices. However, the market is still sensitive to changes in consumption patterns and any sudden uptick in demand could reverse this trend.

The geopolitical situation, notably the potential ceasefire in Gaza, although not directly linked to oil supply, affects market sentiment. A resolution could bring stability to a region often seen as a fulcrum in global oil trends. Any escalation, on the other hand, could reintroduce risk premiums into oil prices.

Lastly, the Federal Reserve’s stance on interest rates and its impact on the U.S. economy remains a pivotal factor. While lower rates are generally favorable for oil demand, the actual impact will hinge on the overall health of the economy and corresponding energy needs. Moreover, global economic indicators, such as Germany's recessionary signals and the UK's economic outlook, contribute to the complex web of factors influencing oil market forecasts.

Fundamentally, the immediate outlook for WTI crude suggests a cautious approach for bullish traders. The market currently appears to be in a state of flux, with bearish signals emanating from reduced gasoline demand and potential geopolitical easing, balanced against economic policy decisions that could foster demand growth. Traders should remain vigilant, closely monitoring both domestic and international developments for indications of potential price movements in the coming week.

From a technical perspective, while the overall uptrend is anticipated to persist, the market is confronted with possible softening, attributed to the emerging weekly closing price reversal top. Should this reversal be confirmed, it could temporarily halt the rally for a duration of 2 to 3 weeks, potentially resulting in a period of consolidation.