Crude oil prices (WTI) rose by 1.46% yesterday after rebounding from a daily low of $77.33, and at the start of trading today, Thursday, the upward trend resumed to settle near $79.90 currently.
With increased geopolitical risks and threats of supply disruptions, oil prices are also supported by expectations that the Federal Reserve may begin its easing cycle this year.
However, price direction remains mixed, as a higher-than-expected reading of the U.S. Consumer Price Index raised concerns for investors regarding the Fed’s ability to cut interest rates in June.
The S&P 500 and Nasdaq indices held near record levels, with energy stocks helping to mitigate losses in the S&P 500 index while technology stocks declined. The dollar also rebounded as selling accelerated in U.S. Treasury bonds.
From my perspective, today’s focus is on U.S. retail sales figures and producer price inflation data. Retail sales are expected to rebound after a relatively weak reading in January, while producer prices are expected to rise in February, supported by higher energy prices.
I expect that strong retail sales and elevated producer price index data will ease expectations of Federal Reserve rate cuts, supporting further increases in U.S. Treasury yields and the dollar, and stimulating corrective downward movements in U.S. stock markets.
I believe that oil prices are currently enjoying positive pressure, especially after data confirmed a decrease in U.S. crude oil inventories by 1.5 million barrels last week, and following Ukraine‘s drone attacks on major Russian oil refineries causing damage to around 12% of their oil processing capacity. The U.S. crude oil barrel tested the $80 level. Short positions near $80 may be liquidated due to escalating tensions.
Still, I doubt that crude oil prices will sustainably rise above this level, especially when geopolitical tensions fade from the headlines. Additionally, there is strong resistance within the $80/82 per barrel range in the short to medium term.
European stocks also continued their gains and reached a new record level yesterday, led by energy and commodity names. This came after the U.S. Energy Information Administration (EIA) revealed that crude oil inventories had decreased by 1.5 million barrels, and other data showed gasoline inventories falling by nearly three times the estimates, while distillate inventories increased. The price rose to its highest level at $79.90 but stabilized below the resistance level between $80.00 and $82.00.
While the Organization of the Petroleum Exporting Countries (OPEC) stuck to its demand growth forecast of 2.25 million barrels per day in 2024, surpassing analysts’ expectations, all these factors naturally bolster the strength of oil. Also, once the Federal Reserve begins easing policy, the U.S. dollar will come under pressure, supporting the upward trend in oil prices in the medium to long term.
