Oil prices extend gains on falling US stockpiles

Oil prices extended gains on Wednesday, with WTI price rising above $74.3 per barrel. If the WTI price declines, it may encounter support near $73.9 per barrel, while resistance may be found near $83.6 per barrel.

U.S. crude oil inventories declined by 12.5 million barrels, against expectations of an 800K barrels raise, boosting oil prices. According to a report by the Energy Information Administration on Wednesday, the decline was mainly due to a drop in imports. 

Oil prices are also boosted by diminishing rate hike expectations. US Federal Reserve Chair Jerome Powell indicated that the US Central Bank may pivot towards a more dovish direction. The Federal Reserve raised interest rates by 25 basis points at its latest monetary policy meeting, bringing the benchmark interest rate to a 16-year high target range of 5.00% to 5.25%. The US Central Bank has signaled that its hawkish policy is coming to an end, providing support for oil prices. As major central banks are winding down their hiking cycles, the oil demand outlook rises. The minutes of the latest Fed meeting were released on Wednesday, increasing the odds of a pivot in the Fed’s policy direction. According to the FOMC minutes, several Fed members advocated for a pause in rate hikes during the Fed’s last meeting in May.

Oil prices have been under pressure, as mounting economic risks reduce the oil demand outlook. Recession concerns run high and aggressive rate hikes stifle economic activity, putting a lid on oil prices. The potential of a banking sector meltdown has also reduced the oil demand outlook. 

US Treasury Secretary Janet Yellen has warned that the office would not meet all US government obligations by June 1. On Wednesday, Yellen reiterated that the US debt ceiling deadline remains in early June and cannot be extended without the US missing payments. The ongoing debate around the US debt ceiling is causing economic uncertainty, pushing oil prices down. Last week, House Speaker McCarthy and President Biden started talks on the debt ceiling. The two leaders have yet to reach an agreement on the US debt ceiling, but negotiations continue. 

Oil prices are supported by limited supply however, as OPEC+ producers recently decided to reduce output by 1.1 million barrels per day, to offset the drop in oil prices from the global banking crisis. This week, Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman warned traders against shorting oil futures. OPEC+ is meeting again on June 4 and the Saudis’ warning has fuelled speculation on further production cuts.

TRADE WTI

The content provided in this material and/or any other material that this content is referred to, whether it comes from a third party or not, is for information purposes only and shall not be considered as a recommendation and/or investment advice and/or investment research and/or suggestions for performing any actions with financial products or instruments, or to participate in any particular trading strategy and cannot guarantee any profits. Past performance does not constitute a reliable indicator of future results. TopFX does not represent that the material provided here is accurate, current, or complete and therefore shouldn't be relied upon as such. This material does not take into account the reader's financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of TopFX, no reproduction or redistribution of the information provided herein is permitted.

Written by:
Myrsini Giannouli

Share the article: