Key Highlights
· Since the start of the year, crude oil has seen a 6.50% increase, with a 0.80% gain observed in the past week.
· US oil prices have witnessed a significant rally during January, reaching their highest levels in nearly two months, driven by robust economic growth in the US and the anticipation of Chinese economic stimulus.
· Geopolitical tensions in the Middle East, particularly around the Red Sea, have further supported prices due to concerns over potential supply disruptions.
Economic Drivers
Global Economic Outlook: The International Monetary Fund has raised its forecast for global economic growth, positively impacting the outlook for both the U.S. and China. This revision is based on a faster-than-expected easing of inflation.
IEA Predicts Increased Oil Demand: The International Energy Agency forecasts a global oil demand increase of 2 million barrels per day (mb/d) in 2024.
US Economic Indicators Boost Oil Demand Outlook: Encouraging signs from the US economy, including quicker-than-anticipated GDP growth in Q4 and diminishing inflation rates, have enhanced expectations for oil demand.
Chinese Economic Stimulus Lifts Market Sentiments: Economic initiatives by China to stimulate growth have positively influenced market sentiments, indicating possible boosts in oil demand from the leading global crude importer.
Geopolitical Tensions: Escalating tensions in the Middle East, particularly relating to the recent drone attack in Jordan and the US response, have heightened market sensitivity and influenced oil prices.
Unexpected Rise in US Crude Inventories: The latest EIA report showed a surprising increase of 1.234 million barrels in US crude oil inventories for the week ending January 26, 2024, defying market expectations for a 0.217-million-barrel decrease.
Gasoline Stocks Increase Less Than Expected: Gasoline inventories increased by 1.156 million barrels, which was below the anticipated gain of 1.483 million barrels.
Impact of U.S. Interest Rate Outlook: The market is adjusting to the likelihood of prolonged higher U.S. interest rates following the Federal Reserve's dismissal of expectations for a rate cut in March.
China’s Economic Slowdown Concerns: Economic indicators from China, including manufacturing activity remaining in contraction as per January's official purchasing managers index, raise alarms over demand prospects, contributing to the cautious outlook on oil prices.
Technical Overview and Key Levels
Shift in Market Sentiment: Since October 2023, the oil market experienced a structured downtrend, bottoming out at $68, before breaking out of its downward trend channel in January. This breakout, particularly moving above $75 and the 45 daily EMA channel, shifted momentum towards a bullish sentiment.
Breakout and Retest: Despite breaking the December high of $76 and momentarily surpassing $79, the market has not been able to sustain its momentum and is now retesting the $76 level as support, with potential for a new uptrend initiation if support holds.
Resistance at $80: The $80 resistance level is highlighted by the November highs and the upper boundary of the 200 EMA channel, marking it as a critical resistance level.
$80 Mark as Trend Confirmation: A move above the $80 mark would confirm a new uptrend in the US oil market. However, significant resistance near the November highs, just below $80, challenges this potential shift.
Bearish Momentum and Downward Trajectory: If the market cannot maintain levels above $75, it would re-align to a downward trend, potentially accelerating bearish momentum and leading to a sideways consolidation within January’s price range.
USOIL 4Hour Chart:
Looking Ahead
Market Outlook Influenced by Key Factors: The upcoming week's market direction is anticipated to be shaped by developments in US-China economic policies, Middle East geopolitical tensions, and changes in US crude inventory levels.
OPEC+ Meeting Outlook: While analysts do not anticipate a definitive decision on April's oil policy at today’s OPEC+ meeting, there is hope for insights into future production plans.
Anticipation for China's Economic Stimulus: Investors are closely monitoring potential additional stimulus measures from China, crucial for influencing the global economic landscape and oil demand forecasts.
US Response to Middle East Tensions: The potential impact on the oil market is closely watched, as the US's approach to ongoing Middle East tensions could significantly influence global oil supply and prices.
Importance of Middle East Developments: Continuous monitoring of Middle East tensions is critical, as escalations could significantly impact global oil supply chains, potentially driving oil prices upwards.
