Oil Price Forecast: Weaker as Dollar Strengthens, Stockpile Draw Falls Short

Highlights

• U.S. crude oil futures edge lower on strong dollar and profit-taking.
• Dollar recovery impacts attractiveness of dollar-denominated crude for foreign buyers.
• Smaller-than-expected decline in U.S. crude inventories prompts profit-taking.

Overview

U.S. West Texas Intermediate crude oil futures are edging lower early Thursday, following the previous session’s losses. The decline can be attributed to two key factors: the strengthening of the U.S. dollar and profit-taking after the government reported U.S. crude oil inventories fell less than forecast.

At 05:35 GMT, Light Crude Oil futures are trading $75.33, down $0.10 or -0.13%.

Greenback Recovery Weighs on Dollar-Denominated Oil

Prices were lower on Wednesday as the U.S. Dollar recovered some of last week’s losses, making dollar-denominated crude less-attractive to foreign buyers. Yesterday, the dollar experienced a rebound as market sentiment was bolstered by lower-than-expected inflation in the United Kingdom, reaching its slowest pace in over a year at 7.9%.

EIA Reports Smaller-than-Expected Drawdown

Adding to the negative sentiment, U.S. crude inventories recorded a smaller-than-anticipated decline. According to the Energy Information Administration’s (EIA) data released on Wednesday, crude inventories fell by 708,000 barrels in the last week, totaling 457.4 million barrels. Analysts surveyed by Reuters had expected a drop of 2.4 million barrels. This unexpected outcome prompted profit-taking and further weighed on oil prices.

Will China Stimulus Spur Demand?

Looking ahead, market participants are eagerly awaiting China’s measures to stimulate economic growth. China’s top economic planner announced on Tuesday its commitment to implementing policies that would “restore and expand” consumption in the world’s second-largest economy. The market is keen to observe the impact of these policies on oil demand, as China plays a significant role in global energy consumption.

Short-Term Forecast:  Dollar Sets Tone

In conclusion, oil prices in early Asian trade on Thursday faced downward pressure due to the strengthening of the U.S. dollar and profit-taking resulting from lower-than-anticipated U.S. crude oil stocks. Additionally, market attention is focused on China’s efforts to boost economic growth, as this will have implications for oil demand in the future. As a result, traders and investors will closely monitor these factors to determine the short-term direction of the oil market.

Technical Analysis

WTI Crude Oil sentiment is slightly negative on Thursday as prices dipped from the previous session. While the price remains above the 200-4H moving average of $71.67, indicating a positive sentiment, it is approaching the 50-4H moving average of $75.07, suggesting a potential shift in momentum. The 14-4H RSI reading of 50.18 indicates a neutral momentum. A shift under 50 would indicate weakness.

WTI Crude Oil currently sits above the main support area of $73.81 to $75.29. A failure to hold the 50-4H moving after could trigger a quick break into the support. If the lower level or $73.81 fails then look out to the downside.