Oil News: OPEC Cuts Push Crude Toward $77.36 Target as EIA Report Looms

Crude Oil Futures Surge as Technical Breakout Fuels Bullish Sentiment

Light crude oil futures are climbing sharply, extending gains as bullish traders capitalize on a breakout above the 200-day moving average at $72.36. This level now serves as new support, solidifying the uptrend. With momentum driving prices higher and little technical resistance until $77.36, oil is displaying a strong upside bias, positioning itself for further gains barring any bearish surprises from upcoming inventory reports.

Investors are monitoring the EIA inventory report, due at 14:30 GMT, which is expected to show a 1.8 million barrel drawdown. A larger-than-expected draw could trigger a fresh rally, while a smaller draw or unexpected build may prompt profit-taking, potentially reversing the recent bullish trend.

At 10:08 GMT, Light Crude Oil futures are trading $75.12, up $0.87 or +1.17%.

OPEC Production Decline Supports Tight Supply Narrative

OPEC production slipped by 50,000 barrels per day (bpd) in December to 26.46 million bpd, according to a Reuters survey. This decline follows two consecutive months of production increases. The drop was driven largely by field maintenance in the UAE, which cut production by 90,000 bpd, partially offset by gains in Nigeria and Libya.

Iran’s output also dropped by 70,000 bpd, contributing to the overall reduction. Despite prior production growth, further increases may face pressure from potential tightening of U.S. sanctions. Meanwhile, OPEC’s top producers, Saudi Arabia and Iraq, maintained steady production, adhering to supply cut agreements.

OPEC+ continues to enforce existing production cuts to counterbalance rising output from non-OPEC producers, delaying any planned output hikes until April. Tightened supply from core OPEC members bolsters bullish sentiment as traders factor in reduced availability against steady demand.

Economic Data Reinforces Demand Outlook

In the U.S., economic indicators signal robust activity, supporting stronger oil demand. The latest Job Openings and Labor Turnover Survey (JOLTS) revealed an unexpected increase in job openings, reinforcing expectations of solid economic growth. Analysts suggest this trend points to expanding industrial activity, boosting the outlook for oil consumption.

Additionally, data from the American Petroleum Institute (API) indicated falling U.S. crude stocks, further contributing to the bullish narrative. Combined with tightening OPEC supply, the supply-demand balance appears skewed toward higher prices in the short term.

China’s Fuel Oil Imports Face Pressure from New Tax Policy

China’s fuel oil imports are projected to decline in early 2025 following a tax hike on fuel oil imports, increasing duties from 1% to 3%. This policy shift, along with reduced tax rebates introduced last October, is expected to pressure Chinese refiners, further limiting imports.

Trade sources suggest smaller refiners, reliant on fuel oil as feedstock, may reduce imports, potentially weighing on regional fuel oil prices. Spot premiums for Russian M100 fuel oil, a key feedstock for Chinese refiners, have already softened, reflecting decreased demand expectations.

Market Forecast: Bullish Outlook with Resistance at $77.36

Crude oil prices are positioned for further gains, with the breakout above the 200-day moving average reinforcing bullish sentiment. The absence of significant resistance until $77.36 supports upward movement, driven by tight OPEC supply and robust U.S. economic data. However, traders remain cautious, with the EIA report serving as a pivotal short-term catalyst.

Barring negative surprises from inventories, the market outlook remains bullish, with a potential test of the $77.36 resistance in the near term.