Prices Supported by Oil Fundamentals as FOMC Looms

CRUDE OIL ANALYSIS & TALKS

• USD looks to Fed for guidance.
• OPEC+ stands firm on supporting oil prices.
• Key inflection point tested as 200-day MA comes into focus.

RAW PEL FUNDAMENTAL FOUNDATION

WTI crude oil enjoyed a mostly positive week ahead of the Federal Reserve’s rate decision next week with optimism around a possible peak in the interest rate cycle. Markets (see table below) price with almost 100% certainty 25 bps hike (which I don’t expect to change) but forward guidance from the Fed will be key to short-term direction.

IMPLIED FED FUNDS FUTURES

Source: Refinitiv

From a crude oil perspective, Baker Hughes rig counts showed yet another decline thus affecting supply side concerns contributing to crude oil. Crude oil change data from both the API and EIA missed estimates, but still printed negative along with optimism around the Chinese economy through further stimulus resulted in further price appreciation for oil. Despite the fact that the USD strengthened (traditionally an inverse relationship with crude oil), the aforementioned oil-specific factors negated this negative influence.

OPEC+ ministers reiterated their agility and flexibility at the OPEC International Seminar, stating that they are constantly monitoring market dynamics and will take any necessary measures to strengthen the oil market.

Next week is full of high-impact economic data (see calendar below) in addition to the FOMC announcement with a focus on the Fed’s preferred measure of inflation (core PCE price index), which could follow the previous CPI report revealing lower inflationary pressures on the US economy. If this comes to fruition, oil prices may get another push from a weaker US dollar.

ECONOMIC CALENDAR (GMT +02:00)

Source: Economic calendar DailyFX

TECHNICAL ANALYSIS

WTI CRUDE DAILY RAP

Chart prepared by Warren WinsIG

Price action on the daily WTI crude chart above has bulls testing the 200-day moving average (blue) along with channel resistance (black) that has been holding since August 2022. With the Relative Strength Index (RSI) near overbought levels, it could suggest yet another pullback lower as was the case in early April. This brings the 75.00 psychological handle into focus from a bearish perspective. Bulls will look for confirmation close above this important resistance zone, which could then be considered the 80.00 level

Key resistance levels:

• $80.00
• Channel resistance
• $77.30
• 200 day MA

Key support levels:

IG CUSTOMER SENTIMENT: HIGH

IGCS shows retail traders NET LONG on Crude Oil, with 55% of traders currently holding long positions (at this writing). At DailyFX we usually take a contrarian view to accumulate sentiment; however, due to recent changes in long and short positioning we are arriving at a short-term upside bias.

Contact and follow Warren on Twitter:@WVenketas