Oil Prices Forecast: Geopolitical Tensions, API Decline Fueling Early Strength

Key Points

• American Petroleum Institute (API) crude inventories unexpectedly fall. 
• Geopolitical tensions heighten supply concerns.
• Bullish short-term outlook for oil market.

Oil Market Update

Oil prices have risen for a second consecutive day, influenced by a larger-than-expected decline in U.S. crude inventories and ongoing geopolitical tensions, which are impacting the global oil supply and demand balance.

At 07:22 GMT, international-benchmark March Brent crude oil futures are trading $77.85, up $0.26 or +0.34% and U.S. benchmark March West Texas Intermediate crude oil futures are at $72.58, up $0.29 or +0.40%.

API Reports Crude Inventory Drawdown

In a surprising turn, U.S. crude oil inventories fell significantly, as reported by the American Petroleum Institute (API). The API data showed a decrease of 5.2 million barrels, contrary to the analysts’ expectations of a 700,000-barrel increase in a Reuters poll. This substantial drawdown indicates a stronger demand in the U.S. market, potentially supporting higher oil prices.

Geopolitical Tensions and Supply Outages

The oil market is also grappling with supply concerns due to geopolitical events. The Israel-Gaza conflict and renewed attacks by Yemen’s Houthi militia are posing threats to shipping routes in the Red Sea. Additionally, Libya’s National Oil Corporation (NOC) declared a force majeure at the Sharara oilfield, a significant source of crude, further tightening the global supply.

OPEC+ and EIA Data Implications

OPEC+ continues its strategy of output management, aiming to balance the market amid these disruptions. Moreover, the U.S. Energy Information Administration (EIA) is set to release its data on Wednesday at 15:30 GMT, which is highly anticipated by the market. Traders are especially focused on the EIA’s weekly report, looking for a potential 200,000 barrel draw in crude oil stocks, which would further validate the supply tightness.

Short-Term Market Outlook

Given the current scenario, the short-term outlook for oil is bullish. The expected drawdown in the EIA report, coupled with supply disruptions from the Middle East and Libya, are likely to keep supporting higher oil prices. However, traders should closely monitor upcoming inventory data and geopolitical developments, as these factors are crucial in determining the future direction of the oil market.

Technical Analysis

Light Crude Oil Futures are currently trading at $72.55, positioned below the 200-day and 50-day moving averages, set at $76.67 and $74.99, respectively. This placement indicates bearish sentiment in the market.

The current price is hovering around the pivotal level of $72.48, which is crucial for setting the tone of the day’s trading. Trader reactions to this pivot will be key in determining market direction. With the main support at $66.85 and main resistance at $77.43, market movement beyond these levels could signal stronger bullish or bearish trends.

The mid- to longer-term trend will be determined by trader reaction to the 50 and 200 day moving averages.