Key points:
Oil prices rebounded on Wednesday, recovering from a sharp drop in the previous session that ended a three-day winning streak.
In our view, market participants, and the price action for crude oil, are caught between potential supply disruptions from geopolitical tensions in Libya and the Middle East and concerns over weakening global fuel demand.
Picture: Oil prices on the rise as seen on the VT Markets app.
The charts indicate that crude oil is showing signs of a modest recovery, with the CL-OIL-ECN closing at $75.561 after a slight decline of 0.28%. This comes on the heels of a more than 2% drop on Tuesday, which disrupted a robust rally where prices had surged over 7% in just three days.
The recent pullback reflects a market that is recalibrating after the sharp upward movement, with traders taking profits and reassessing the supply-demand balance.
Oil is currently facing resistance near the $77.576 level, where the rally recently peaked. The price is now hovering around the key Moving Averages (5, 10, 30), with the MACD indicator showing a bearish crossover as the MACD line dips below the signal line. This suggests that momentum is shifting, and the market may enter a consolidation phase as it digests the recent volatility.
Traders will be watching the support level around $75.511 closely, as a break below this level could signal further declines and a potential retest of the $74.000 area. On the upside, resistance near $77.576 remains a key level to overcome if the recovery is to continue.
The market is bouncing back despite challenges such as lower-than-expected global consumption growth and concerns over refinery profit margins, which have pressured expectations for fuel demand. These issues contributed to Tuesday’s sell-off, but support emerged from industry data indicating that U.S. oil and fuel inventories fell last week, providing a floor to the market.
In case you missed it: Oil prices remain weak amid demand concerns and easing supply fears
One of the critical factors influencing oil prices is the risk of supply disruptions, particularly from Libya, where a political dispute between rival government factions threatens to halt about 1.2 million barrels per day of production.
Several oilfields across Libya have already halted output due to the conflict, with engineers reporting stoppages at the Amal and Nafoora oilfields in the southeast, while production at Abu Attifel in the east has been reduced.
Although there has been no official confirmation from the Tripoli-based government or the National Oil Corp (NOC), these developments have raised alarms in the market.
Additionally, the ongoing conflict between Israel and Hamas militants in the Gaza Strip continues to inject uncertainty into the market. Over the weekend, tensions escalated further when Israel and Hezbollah, a militant group backed by Iran, exchanged fire along the Lebanese border.
The lack of progress in ceasefire talks in Cairo has left the situation tense, with potential implications for oil supply from the Middle East.
Also read: Oil prices surge as Middle East tensions rise and U.S. rate cut prospects increase
Supporting the price recovery, U.S. crude oil inventories decreased by 3.407 million barrels in the week ending August 23, according to the American Petroleum Institute (API). Gasoline and distillate inventories also fell, by 1.863 million barrels and 1.405 million barrels respectively. These inventory declines suggest tighter supply conditions, providing additional support to prices.
Later on Wednesday, traders will be watching for the U.S. Energy Information Administration’s (EIA) weekly oil storage data, due at 10:30 a.m. EDT, which could offer further insights into the market’s direction.
The market remains in a state of flux, with geopolitical risks and demand uncertainties creating a whipsaw effect on prices.
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