Oil Price Forecast / Update: Testing Three-Week Low on Anticipated Rate Hike and Strong Dollar

Highlights

• WTI crude oil prices at three-week low
• US crude stocks decreased, gasoline inventories unexpectedly rose
• Russia’s western ports projected to reach highest oil loading level since 2019

Overview

U.S. benchmark WTI crude oil prices are under pressure on Thursday from a stronger dollar and the expectation of rate hikes, resulting in a three-week low.

At 09:56 GMT, WTI Oil is trading $77.78, up $0.14 or +0.17%. On Wednesday, the United States Oil Fund ETF (USO) settled at $69.31, down $1.42 or -2.01%.

Despite lower U.S. crude stocks, WTI crude oil prices are lower, while trading within the gap created on April 3. This indicates market weakness, and if the gap is filled, it may suggest that either OPEC+’s anticipated production cuts have been absorbed by the market or that demand is anticipated to decline, which could be the underlying reason for the group’s plan to reduce output.

Rising Dollar and Inflation Pressure Oil Prices

So far this week, the U.S. dollar index has risen by approximately 0.3%, putting it on track for its strongest week since late February. This rise in the value of the greenback has made oil more expensive for those holding other currencies.

Meanwhile, a recent report from the Federal Reserve indicates that there has been little change in U.S. economic activity over the past few weeks. Despite this, Fed policymakers have hinted that they are approaching the end of a period of aggressive policy tightening, with most predicting a final quarter-percentage-point hike.

Across the Atlantic, the UK is experiencing persistent double-digit inflation, which has increased expectations of a Bank of England rate hike.

US Crude Stockpiles Drop, Gasoline Inventories Rise on Disappointing Demand

According to the U.S. Energy Information Administration (EIA), U.S. crude stockpiles decreased by 4.6 million barrels due to increased refinery runs and exports. However, gasoline inventories unexpectedly rose due to disappointing demand. The decline in crude stockpiles was significantly more substantial than anticipated by analysts and the American Petroleum Institute.

Russia’s Western Ports to See Highest Oil Loading Since 2019

Despite Moscow’s commitment to reducing output, sources in the trading and shipping industry indicate that oil loading from Russia’s western ports in April is projected to reach its highest level since 2019.

Pakistan’s petroleum minister has announced that the country has made its first purchase of discounted Russian crude under a new agreement, which has the potential to cover up to 100,000 barrels per day.

Technical Analysis

From a daily technical viewpoint, WTI Oil is trading on the strong side of its daily pivot at $73.89. However, it is under the R1 level at $82.53. The long-term technicals appear to be in favor of an upside move, but the short-term outlook indicates potential weakness.

A sustained move over R1 at $82.53 will indicate the buying is getting stronger. This could lead to a near-term acceleration to the upside. However, a sustained move under R1 will indicate the short-term selling pressure is getting stronger with the pivot at $73.89 the next major target.

For a look at all of today’s economic events, check out our economic calendar.