Oil prices seem to have stabilised somewhat since last report, in a sign of hesitation on behalf of oil bulls to advance further. In today’s report we are to have a look at the data relating to the US oil market, and continue to view the fundamentals surrounding the international oil market. To conclude the report we will also provide a technical analysis of WTI’s daily chart.
Slack in the US oil market could weigh on oil prices
Making a start with the US oil market data, we note that on Friday, Baker Hughes announced another reduction of active oil rigs in the US reaching now 485, down from prior report of 488. It should be noted that the it’s the fourth consecutive drop of the number of active oil rigs in the US, implying an easing of oil demand which could weigh on oil prices.
On Tuesday we API reported a slight increase of US oil inventories of 914k barrels, which is lower than last week’s increase of 2.2 million barrels. Nevertheless an increase is an increase, once again implying that aggregated oil demand in the US was unable to surpass oil production levels.
The picture became even more clear the following day as EIA also reported an increase of oil inventories only considerably wider than API, specifically of almost 3.6 million barrels. It should be noted that EIA’s release reversed prior week’s release which had shown a drawdown of -2.547 million barrels.
Overall the bearish signals in the US oil market seem to become clearer and should they intensify in the coming week, we may see them weighing on oil prices.
Situation in Middle East may escalate
We highlight our worries for the situation in the Israeli border with Lebanon. It should be noted that the ongoing operation of the IDF in Gaza claimed the lives of dozens of Palestinians in air raids over the past few days.
There is still no possible solution for the conflict on the horizon, while the situation seems about to escalate further with another operation of the IDF at the Northern Israeli border with Lebanon. Five countries have called on their nationals to leave Lebanon amid growing fears of a full-blown war between Israel and the Lebanese group Hezbollah.
The list includes, the Netherlands, Germany, Canada, North Macedonia and Kuwait. The UK and the US have strongly advised against travelling to Lebanon. We tend to see the case of full conflict of Israel with Hezbollah as elevated with chances being more in favour of such a scenario than not. Such a scenario could evolve very quickly and intensely.
Should there be a full blown war between Hezbollah and Israel, the risk of escalating to a regional conflict with the participation of other forces rises as well, which in turn could have substantial bullish effects of oil prices.
Manufacturing data ahead
Over the coming days we get from China and the US data related to economic activity in the manufacturing sectors of the two countries for June. On Sunday and Monday we get from China the NBS and Caixin manufacturing PMI figures respectively and should the two indicators show that Chinese factories are struggling to keep economic activity afloat we may see the release having a bearish effect on oil prices as it could imply reduced oil demand from China in the future.
Similarly on Monday we get the ISM manufacturing PMI figure and should the indicator’s reading show a wider contraction of economic activity for the US manufacturing sector, it could also have a bearish effect on oil prices as it could imply also lower oil demand in the future.
Rebound of oil production in Brazil
Brazilian oil production seems to be rebounding and could set pressure on OPEC’s low production levels strategy to raise oil prices, as the pressure for market share intensifies. Brazil had a marked drop of oil production levels at the start of the year as a number of wells underwent maintenance.
It should be noted that the Latin American country is expected to be the third largest non OPEC+ oil producer, right after the US and Canada and that including the reduced oil production levels in the first half of the year.
The increased oil production levels to come in the coming months are expected to ease supply strains in the oil market and could weigh on oil prices should such a substantial increase of Brazil’s oil production be realised.
Technical Analysis
WTI Cash Daily Chart
- Support: 80.25 (S1), 76.70 (S2), 71.85 (S3)
- Resistance: 84.10 (R1), 86.80 (R2), 89.50 (R3)
Oil’s price action seems to have stabilised just above the 80.25 (S1) support line. Given that on Tuesday, the price action of the commodity has broken the upward trendline guiding it since the 5th of June we switch our bullish outlook for the commodity’s price in favour initially for a sideways movement bias, given the interruption of the upward movement.
Furthermore we note that he 100 and 200 moving averages have flattened out also implying the possibility of a sideways motion. Yet we note that the RSI indicator remains above the reading of 50, implying the presence of a bullish residue in the psychology of market participants for WTI’s price, while the Bollinger bands have not narrowed, implying that there is still a possibility of increased volatility ahead.
Should the bulls regain control over WTI’s price, we may ssse it aiming if not breaking the 84.10 (R1) resistance line, with the next possible target being the 86.80 (R2) resistance level. Should the bears take over, we may see WTI’s price breaking the 80.25 (S1) support line and aim for the 76.70 (S2) support level.
