Selling Pressure Increases In Oil Markets

U.S. West Texas Intermediate crude oil is trading flat on Friday as it heads to a second straight weekly loss. The week started out promising with prices rising on talk of new sanctions against Russia and another setback in nuclear talks between Western powers and Iran.

However, sellers eventually regained control in response to a number of bearish factors including a ceasefire between the United Arab Emirates and the Iran-aligned Houthi group, an unexpected build in U.S. crude stockpiles and the announcement of fresh stockpile releases.

We should find out as early as next week if the selling pressure represents the start of an even larger sell-off, or if it is just a short-term reaction to the extra supply hitting the market.

New Sanctions against Russia Generate Mild Spark

Oil prices started the week with a nearly 5% jump, with investors worried about tighter supply as mounting civilian deaths in Ukraine increased pressure on European countries to impose sanctions on Russia’s energy sector.

German Chancellor Olaf Scholz said Russian President Vladimir Putin and his supporters would “feel the consequences” of events in Bucha, outside the capital Kyiv, where a mass grave and tied bodies shot at close range were found.

Buyers reacted positively to the headline, but the rally eventually fizzled as bearish stories piled up throughout the week, chasing the bulls to the sidelines.

Early Support from Halt in US – Vienna Nuclear Talks

Crude was also supported early in the week by a pause in talks in Vienna to revive the Iran nuclear deal, which would allow a lifting of sanctions on Iranian oil. Iran blamed the United States for the halt.

The United States is responsible for the pause in talks between Tehran and world powers in Vienna aimed at reviving their 2015 nuclear deal, an Iranian foreign ministry spokesperson said on Monday.

“America is responsible for the halt of these talks … a deal is very much within reach,” Saeed Khatibzadeh told a weekly news conference.

“Washington should make political decision for the deal’s revival,” he said, adding that Tehran would “not wait forever”.

United Nations Brokers Truce Between Saudi-led Coalition, Houthi Group

Downward pressure on crude prices came from a truce in Yemen, which could ease threats to supply in the Middle East.

For the first time in the seven-year conflict, the United Nations has brokered a two-month truce between a Saudi-led coalition and the Houthi group aligned with Iran. Saudi oil facilities have come under Houthi attack during the fighting.

EIA Data Shows US Production Up, Inventories Build

US crude stocks rose by 2.4 million barrels in the latest week, the U.S. Energy Information Administration said, while analysts had expected a drawdown. Output also rose, hitting 11.8 million barrels a day, the most since late 2021, and output is expected to continue rising.

IEA to Release 120 Million Barrels of Oil

The tone in the crude oil market shifted to mostly bearish on Wednesday after large consuming nations said they would release oil from reserves to counter tightening supply.

Member states of the International Energy Agency (IEA) will release 120 million barrels from strategic reserves to try to quell price gains. The release will include 60 million from the United States, according to two sources familiar with the matter. That commitment forms part of the previous U.S. announcement of a 180 million-barrel reserve release.

Weekly Technical Analysis

Weekly June WTI Crude Oil

Trend Indicator Analysis         

The main trend is up according to the weekly swing chart, however, momentum has been trending lower, since the confirmation of the closing price reversal top from the week-ending March 11.

A trade through $121.17 will negate the bearish chart pattern and signal a resumption of the uptrend.  A move through $61.48 will change the main trend to down. This is highly unlikely, however.

The minor trend is also up. A trade through $90.37 will change the minor trend to down. This will confirm the shift in momentum. A move through the minor top at $113.51 will be a sign of strength.

Retracement Level Analysis

The major resistance remains the longer-term retracement zone at $111.45 to $136.92.

The first minor range is $121.17 to $90.37. Its retracement zone at $105.77 to $109.40 is resistance.

The recent bearish reaction to the resistance zone has put the market in a position to retest the support zone at $91.33 to $84.28. This zone stopped at $90.37 the week-ending March 18.

The main range is $33.00 to $121.17. If $84.28 fails as support then look for the selling to extend into its retracement zone at $77.09 to $66.68.

Weekly Technical Forecast

The direction of the June WTI crude oil market the week-ending April 15 will be determined by trader reaction to $91.33.

Bullish Scenario

A sustained move over $91.33 will indicate the presence of buyers. If this move creates enough upside momentum then look for a retest of the resistance zone at $105.77 to $109.40.

Crossing to the strong side of $109.40 will indicate the buying is getting stronger. This could trigger an acceleration into the minor top at $113.51, followed by the main top at $121.17.

Bearish Scenario

A sustained move under $91.33 will signal the presence of sellers. Taking out the minor bottom at $90.37 will indicate the selling is getting stronger. This could trigger a further break into the Fibonacci level at $84.28.  

Short-Term Outlook

In my opinion, June WTI crude oil has hit the proverbial “bend or break” area on the weekly chart. This is the 50% level at $91.33. We’re going to see a technical bounce on the first test of this level, or sellers are going to drill this market further into at least $84.28.

Clearly, the shock of the overall size of the amount of oil being released from global stockpiles is weighing on prices. But how long will this impact last? A few of the major analysts don’t see its influence lasting too long.

PVM analyst Stephen Brennock questioned the impact of the reserves being released. “Despite these unprecedented volumes, doubts remain whether this incoming flood of supply will address the shortfall in Russian crude,” he said.

JPMorgan expects the reserves release to “go a long way in the short term” to offsetting the 1 million barrels per day of Russian oil supply it expects to remain permanently offline.

“However, looking forward to 2023 and beyond, global producers will likely need to ramp up investment to both fill the Russia-sized gap in supply and restock IEA strategic reserves,” the bank said in a note.

Finally, a new wildcard variable was revealed earlier in the week – the U.S. Dollar. The dollar is important to the direction of crude oil because the asset is a dollar-denominated commodity. In other words, a stronger dollar will make U.S. crude oil more expensive to foreign buyers. This could weigh on demand.

The value of the U.S. Dollar took on greater importance this week because the Federal Reserve revealed in its meeting minutes that it will act aggressively as it combats robust inflation.