USOIL Heads for Weekly Gains despite Negativity

  • USOil
    (${instrument.percentChange}%)

USOil Analysis

US CPI Inflation moderated in May according to Wednesday release, showing that the disinflation process is still on, but that was not enough to sway the Fed away from its higher-for-longer stance. Officials now see just one rate cut this year, hiked the longer-run rate and raised their inflation projections for this year and the next. However, Chair Powell downplayed the upgraded inflation forecast and the strong payrolls in a commentary that did not seem particularly hawkish [1]. That reflected in markets, which currently price in two cuts, starting in September.

At the same time, the International Energy Agency (IEA) downgraded again its demand growth outlook for 2024, to just 960,000 barrels per day (bpd), marking a steep deceleration from last year. At the same time, supply is expected to rise by 690,000 bpd, driven by non-OPEC producers like the US, which is poised for another record output this year [2]. This adds to existing surplus concerns, as OPEC+ recently extended supply cuts, but will start returning oil to the market form the fourth quarter.

However, the actions of OPEC+ can lead to a deficit over the next few months. The green energy transition and EV proliferation erodes demand for oil, but amidst recent "greenlash" and EV adoption slowdown, its appeal remains strong. At the same time, emerging economies like India, are hungry for fossil fuels to sustain their high growth.

USOil was able to look past the negativity and head towards the conclusion of a profitable week. It tries to take out a crucial technical cluster, consisting of the 38.2% Fibonacci of the recent drop, the EMA200 and the descending trend line of the 2024 highs. Successful effort will pause the bearish bias and allow the commodity to look towards 83.89.

However, we are cautious around its ascending prospects and the upside looks unfriendly technically. Although the market is likely to tighten further in the second half of the year, the fundamental outlook beyond that is unfavorable. A rejection of the aforementioned critical resistance area would reaffirm the bearish bias and could send USOil below to new lows (72.45).

Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 14 Jun 2024 https://www.federalreserve.gov/monetarypolicy/fomcpresconf20240612.htm

2

Retrieved 15 Jul 2024 https://www.iea.org/reports/oil-market-report-june-2024

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