fbpx

Crude Rebounds on Inventory Draw

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

Over the past two month, oil prices have experienced a brutal sell off declining almost 29% from its September high of $95.03 to Wednesday’s low of 67.71. The persistent decline in oil prices over the past seven weeks has been triggered by several factors such as the impact of recent OPEC+ output cuts and doubts about their effectiveness, the continuous surge in U.S. crude production, a slow post pandemic recovery in China, and uncertainties about global crude demand.

The voluntary output cuts made by OPEC+ failed to impress the markets. OPEC+, recently pledged to cut production by about 2.2 million barrels per day for the first three months of next year. However, scepticism prevails in regard to the effectiveness of the cuts, as they are voluntary not mandatory, and are shorter than previous agreements.

Also, the significant growth in U.S. crude production, has contributed to a perception that global oil supplies could outpace demand. The market sees the recent pledges by OPEC+ to extend the output cuts into the first quarter of 2024 as not likely to make a significant dent in global supply. With the U.S. exporting nearly 6 million barrels of oil daily, OPEC+ members are pressured to lose market share, prompting hesitance among some members to further reduce production.

Apart from supply-side issues, concerns about demand have exacerbated the downward pressure on oil prices, as worries stemming from China are mounting, amid recent data revealing a sluggish post-pandemic recovery. Chinese oil imports in November hit a four-month low, reflecting high stockpiles and muted demand. This has raised concerns about a slowdown in global oil demand growth in 2024, with OPEC and the International Energy Agency offering divergent forecasts.

However, amidst these economic headwinds, the severity of the oil price decline may not be entirely justified, given the demand inelasticity nature of oil prices. The supply side of the equation holds significant influence, and the possibility of additional measures by OPEC+ to stabilize prices could provide crucial support.

A graph of a stock market

Description automatically generated

Source: TradingView

From a technical perspective, WTI prices are approaching a cluster of previous support between $64.00 and $67.00, which can emerge as a critical support zone once again. However, both bullish and bearish traders are advised to be cautious at this juncture in time, as further declines from here may not be entirely justified, while getting long before a clear trend reversal occurs may be premature. Nonetheless, crude prices may be approaching a turning point and once the down trend clearly reverses course, a strong recovery could unfold, potentially rising to $80.00 – $85.00. The start of a rally could squeeze the excessive number of short positions at present, which would further accelerate the positive momentum. However, the main driver of such potential and sustained rally would be signs of recovery in demand.

Crude prices rebounded sharply on Thursday after the International Energy Agency (IEA) latest monthly report recalibrated its projections for 2024 world oil consumption, revising the estimate upward by 1.1 million barrels per day (bpd). This adjustment, representing a 130,000 bpd increase from the previous forecast, which is attributed to an enhanced outlook for the United States and the influence of lower oil prices. However, the IEA’s optimism is tempered in comparison to the forecast put forth by OPEC+.

Another driver behind Thursday’s surge in oil prices is the depreciation of the U.S. dollar, which hit a four-month low after signals from the U.S. Federal Reserve about the conclusion of the interest rate hike cycle and prospects of lower borrowing costs in 2024, which can stimulate economic growth and increase oil demand associated with lower rates.

The market sentiment was also positively influenced by a more substantial-than-expected draw from U.S. crude inventory. Despite concerns stemming from the recent COP28 agreement, which underscores a commitment to transitioning away from fossil fuels, the IEA’s revised demand outlook suggests a resilient near-term outlook for oil consumption.

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

Related Posts

Gold is in a healthy correction and higher price levels are likely by year end.
Gold is in a healthy correction and higher price levels are likely by year end.
Violeta-540x540-1.jpg
Violeta Todorova
Gold is in a healthy correction and higher price levels are likely by year end.
Gold is in a healthy correction and higher price levels are likely by year end.
Gold is in a healthy correction and higher price levels are likely by year end.
Supply, demand disequilibrium and lower US rates could squeeze the non-precious metal
Supply, demand disequilibrium and lower US rates could squeeze the non-precious metal
Violeta-540x540-1.jpg
Boyan Girginov
Supply, demand disequilibrium and lower US rates could squeeze the non-precious metal
Supply, demand disequilibrium and lower US rates could squeeze the non-precious metal
Supply, demand disequilibrium and lower US rates could squeeze the non-precious metal
Q2 is poised for European stocks’ turnaround and rising interest in energy stocks
Q2 is poised for European stocks’ turnaround and rising interest in energy stocks
Violeta-540x540-1.jpg
Sandeep Rao
Q2 is poised for European stocks’ turnaround and rising interest in energy stocks
Q2 is poised for European stocks’ turnaround and rising interest in energy stocks
Q2 is poised for European stocks’ turnaround and rising interest in energy stocks
Escalation of the conflict in the Middle East threatens to derail the economic recovery.
Escalation of the conflict in the Middle East threatens to derail the economic recovery.
Violeta-540x540-1.jpg
Violeta Todorova
Escalation of the conflict in the Middle East threatens to derail the economic recovery.
Escalation of the conflict in the Middle East threatens to derail the economic recovery.
Escalation of the conflict in the Middle East threatens to derail the economic recovery.
What is an ETF? How does an ETF work? Key characteristics of ETFs.
What is an ETF? How does an ETF work? Key characteristics of ETFs.
Violeta-540x540-1.jpg
Boyan Girginov
What is an ETF? How does an ETF work? Key characteristics of ETFs.
What is an ETF? How does an ETF work? Key characteristics of ETFs.
What is an ETF? How does an ETF work? Key characteristics of ETFs.
Violeta-540x540-1.jpg
Pawel Uchman
A quick primer on leveraged instruments available in markets today.
A quick primer on leveraged instruments available in markets today.
Violeta-540x540-1.jpg
Sandeep Rao
A quick primer on leveraged instruments available in markets today.
A quick primer on leveraged instruments available in markets today.
A quick primer on leveraged instruments available in markets today.

Violeta Todorova

Senior Research

Violeta è entrata a far parte di Leverage Shares nel settembre 2022. È responsabile dello svolgimento di analisi tecniche e ricerche macroeconomiche ed azionarie, fornendo pregiate informazioni per aiutare a definire le strategie di investimento per i clienti.

Prima di cominciare con LS, Violeta ha lavorato presso diverse società di investimento di alto profilo in Australia, come Tollhurst e Morgans Financial, dove ha trascorso gli ultimi 12 anni della sua carriera.

Violeta è un tecnico di mercato certificato dall’Australian Technical Analysts Association e ha conseguito un diploma post-laurea in finanza applicata e investimenti presso Kaplan Professional (FINSIA), Australia, dove è stata docente per diversi anni.

Julian Manoilov

Marketing Lead

Julian è entrato a far parte di Leverage Shares nel 2018 come parte della prima espansione della società in Europa orientale. È responsabile della progettazione di strategie di marketing e della promozione della notorietà del marchio.

Oktay Kavrak

Head of Communications and Strategy

Oktay è entrato a far parte di Leverage Shares alla fine del 2019. È responsabile della crescita aziendale, mantenendo relazioni chiave e sviluppando attività di vendita nei mercati di lingua inglese.

È entrato in LS da UniCredit, dove è stato responsabile delle relazioni aziendali per le multinazionali. La sua precedente esperienza è in finanza aziendale e amministrazione di fondi in società come IBM Bulgaria e DeGiro / FundShare.

Oktay ha conseguito una laurea in Finanza e contabilità ed un certificato post-laurea in Imprenditoria presso il Babson College. Ha ottenuto anche la certificazione CFA.

Sandeep Rao

Research
Sandeep è entrato a far parte di Leverage Shares nel settembre 2020. È responsabile della ricerca sulle linee di prodotto esistenti e nuove, su asset class e strategie, con particolare riguardo all’analisi degli eventi attuali ed i loro sviluppi. Sandeep ha una lunga esperienza nei mercati finanziari. Iniziata in un hedge fund di Chicago come ingegnere finanziario, la sua carriera è proseguita in numerose società ed organizzazioni, nel corso di 8 anni – da Barclays (Capital’s Prime Services Division) al più recente Index Research Team di Nasdaq. Sandeep detiene un M.S. in Finanza ed un MBA all’Illinois Institute of Technology di Chicago.

Gold Retreats But Rally is Not Over

Copper Ready to Explode

Q2 2024 Market Outlook: Rocky Road Ahead

What is an ETF? (Exchange Traded Fund)

How Do Leverage Shares ETPs Trade in Multiple Currencies