Oil News: Geopolitical Tensions and Inventory Data Impact Oil Demand

Oil Prices Consolidate on Geopolitical Tensions and Inventory Data

Light crude oil futures are experiencing slight gains on Wednesday, consolidating within a key retracement zone between 50% to 61.8%. Despite major and minor trend indicators pointing lower, traders appear to be defending the June 4 bottom at $70.67.

At 09:23 GMT, Light Crude Oil Futures are trading $73.43, up $0.23 or +0.31%.

Oil Prices Forecast: Mideast Tensions and U.S. Inventory Data

Oil prices edged higher on Wednesday, influenced by escalating tensions in the Middle East. However, Brent crude remains near seven-month lows, under pressure from concerns about weak demand and potential recession in the United States. The fear of conflict in the Middle East disrupting oil production has provided some support to prices since Tuesday.

On Monday, Brent futures dropped to their lowest since early January, and WTI futures hit their lowest since February, driven by a global stock market downturn and weak U.S. jobs data. The market is debating whether this reversal is a temporary bottom-picking or a thorough reassessment of medium-term implications of the U.S. job data.

Chinese Trade Data and U.S. Inventory Reports Influence

Chinese trade data indicated a bearish demand outlook, with July daily crude oil imports falling to their lowest level since September 2022. Earlier in the trading session, oil prices slipped following U.S. data showing an unexpected build in crude oil and gasoline inventories. The American Petroleum Institute (API) reported an oil inventory build of 180,000 barrels for the week ending August 2, snapping a five-week streak of inventory declines. This minor build surprised traders and cast doubt on demand during the peak consumption season.

Middle East Conflict and Supply Concerns

Tensions in the Middle East have stoked supply concerns, with possible new attacks by Iran and its allies following the recent killings of senior members of Hamas and Hezbollah. U.S. officials have been actively engaging with regional allies to prevent further escalation. ANZ analyst Daniel Hynes noted that any escalation could increase the risk of supply disruptions from the region.

Libya’s suspension of production at its largest field, Sharara, which has a capacity of 300,000 barrels daily, adds to supply concerns. The EIA reported a global oil stock reduction of 400,000 barrels daily, further supporting prices.

Market Outlook: Bearish with Potential Volatility

While geopolitical tensions provide some support, the overall outlook remains bearish due to weak demand signals and recession fears. Traders should watch for further developments in the Middle East and upcoming inventory data from the U.S. Energy Information Administration. The market is likely to remain volatile, with potential for both bullish and bearish movements depending on geopolitical and economic developments.

Technical Analysis

Light crude oil futures are currently consolidating inside a value zone formed by a 50% level at $74.61 and a 61.8% level at $72.19. Although the low this week is $71.67, buyers stepped in at this level to stop the price slight, using the June 4 bottom at $70.67 as their “lean”.

Even if buyers can overcome $74.61, they still face headwinds with additional resistance a minor 50% level at $75.28, followed by the 200-day moving average at $75.60.

Crossing to the weakside of the Fibonacci level at $72.19 will indicate sellers are still in control with their targets set at $71.67 and $70.67.