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Oil News: Supply Constraints Fuel Bullish Sentiment; Watch $76.03 for Corrections

By:
James Hyerczyk
Updated: Jan 17, 2025, 10:53 GMT+00:00

Key Points:

  • U.S. sanctions on Russian oil could cut 700K barrels/day, fueling supply concerns and bolstering crude oil prices.
  • Crude oil futures target $79.44 resistance as traders weigh bullish supply risks and seasonal demand from colder weather.
  • China’s refinery throughput fell for the first time since 2022, casting uncertainty on long-term demand recovery for crude oil.
  • Freight rates surge as sanctions disrupt Russian oil transport, driving higher shipping costs and tightening global supply.
  • Crude markets remain cautiously bullish, with key support at $76.03 and traders bracing for possible corrections.
Crude Oil News

In this article:

Crude Oil Futures Show Resilience Despite Supply and Demand Uncertainties

Daily Light Crude Oil Futures

Light crude oil futures edged higher on Friday, signaling a potential fourth consecutive week of gains as traders balanced bullish supply risks against demand-side uncertainties.

Prices lingered near technical resistance levels at $78.28, $79.44, and $80.00, raising the possibility of a short-term correction should momentum falter. Key support lies at $76.03 and $75.47, with traders eyeing these levels for dip-buying opportunities.

At 10:37 GMT, Light Crude Oil futures are trading $78.15, up $0.30 or +0.39%.

Sanctions Add Bullish Supply Concerns

The Biden administration’s expanded sanctions on Russian oil producers and tankers are a significant factor underpinning recent gains. These measures, targeting 183 vessels and key Russian producers, have disrupted supply chains, reducing tanker availability and complicating shipments to major importers like China and India. Analysts from ING estimate the sanctions could eliminate up to 700,000 barrels per day (bpd) from the global market, tightening supply further.

At the same time, a sanctioned tanker was observed discharging Russian crude at a port in China’s Shandong province, where independent refiners are major buyers. Industry participants are monitoring compliance closely, as any shifts in enforcement could significantly affect market sentiment.

Demand Signals Remain Mixed

While seasonal demand for heating oil in the U.S. has strengthened due to colder-than-normal winter conditions, broader demand signals present a mixed picture. U.S. inflation data suggests easing price pressures, supporting the case for Federal Reserve rate cuts, which could stimulate economic activity and fuel consumption. However, China’s refining activity has declined, marking its first year-on-year drop in throughput since 2022, potentially tempering optimism for a robust demand recovery.

Geopolitical Developments and Market Sentiment

Geopolitical factors remain pivotal, with tensions in the Middle East easing following a Gaza ceasefire deal. The end of attacks on ships in the Red Sea could alleviate some logistical bottlenecks, but supply concerns persist due to anticipated tougher stances on Iran and Venezuela by U.S. policymakers.

Meanwhile, freight rates for sanctioned and non-sanctioned tankers have soared, reflecting tighter shipping availability. This trend has compounded bullish supply-side pressures as traders navigate increasingly expensive logistics.

Market Forecast: Cautiously Bullish

Crude oil markets exhibit a cautiously bullish outlook, with prices likely to test the $79.44 and $80.00 resistance levels in the near term. A breakout could target $81.33, while a failure to maintain momentum risks a pullback to $76.03 – $75.47.

Supply constraints from sanctions, coupled with seasonal demand, provide strong bullish underpinnings. However, uncertainties around demand growth and compliance with sanctions enforcement keep the market vulnerable to profit-taking. Traders should remain agile, balancing opportunities for gains with the potential for short-term corrections.

More Information in our Economic Calendar.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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