Crude Oil News Today: Gaza Ceasefire Deadlock Counters US Inventory Surplus

Oil Market Under Strain Amid Middle East Tensions

Oil prices saw a rise on Wednesday after enduring losses for two consecutive days. This uptick is primarily attributed to the persisting deadlock in Gaza ceasefire talks, fueling worries about the stability of oil supplies from the Middle East. Despite this increase, prices for both benchmarks are approximately 1.7% lower than at the end of last week.

At 09:25 GMT, Light Crude Oil Futures are trading $85.53, up $0.30 or +0.35%.

Geopolitical Tensions and Inventory Surplus

The prolonged conflict in Gaza, with potential to escalate further, is a major contributor to the uncertainty in the oil market. Israel’s intensifying war in Gaza and the possibility of more countries becoming involved adds to these tensions. Compounding this, the U.S. reported a more significant build in crude inventories than anticipated, as per the American Petroleum Institute (API). This unexpected surplus somewhat moderated the price increases.

Ceasefire Efforts and Regional Impacts

Efforts towards a ceasefire, particularly the discussions in Cairo involving various international mediators, have yet to yield a breakthrough. The possibility of Iran, OPEC’s third-largest producer, being drawn into the conflict remains a concern, especially with the Iranian Revolutionary Guard’s navy indicating the potential closure of the Strait of Hormuz, a crucial passageway for global oil transport. Simultaneously, Turkey’s decision to limit exports to Israel, including jet fuel, until a ceasefire is reached adds to the market’s unease.

Domestic Adjustments Affecting Supply

Adding to the supply-side concerns, Mexico’s state oil company, Pemex, announced a significant reduction in crude exports for May. This decision is part of a strategy to prioritize domestic refineries, thereby reducing the availability of Mexican oil to U.S., European, and Asian markets.

Short-Term Market Forecast: Bullish Trend

Considering the heightened geopolitical risks, including the continued Israel-Gaza conflict and potential regional escalations, coupled with supply-side constraints from Pemex and surplus U.S. inventories, the short-term forecast for oil prices leans bullish. Any further escalation in the Middle East or unexpected geopolitical events could prompt a swift uptick in oil prices. Additionally, the U.S. Energy Information Administration (EIA) projects a modest increase in Brent crude prices in 2024, reinforcing the bullish outlook for the near term.

Technical Analysis

Light crude oil futures are in an uptrend, but the price action over the past four sessions suggests it may be due for a pullback unless fresh bullish news comes out. The threat of a cease fire between Hamas and Israel seems to be capping gains.

The short-term range is $80.30 to $87.63, making its pivot at $83.96 a potential downside target.

While a trade through $80.30 will signal a resumption of the uptrend, a move through $87.63 will change the short-term trend to down. Nonetheless, traders shouldn’t worry about a long-term downtrend developing due to major support at $79.13 to $77.96, or the 50- and 200-day moving averages, respectively.