Crude Oil Prices Climb on Falling Stockpiles, Brighter Demand Outlook

CRUDE OIL PRICE OUTLOOK:

API reported a 3.608-million-barrel draw in crude inventories for the week ending April 9th
OPEC demand upgrade and strong US inflation data underpinned oil prices
Prices breached above a “Falling Wedge” chart pattern, hinting at further gains ahead

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Crude oil prices advanced modestly during the APAC morning session after gaining 1.36% overnight. The American Petroleum Institute (API) reported a larger-than-expected draw in crude oil inventories, sending prices higher. Stockpiles fell 3.608 million barrels for the week ending April 9th, compared to a 2.889-million-barrel decline forecast. This marks a third consecutive weekly fall in America’s crude inventories, pointing a recovery in refinery activity and underlying demand.

OPEC raised its forecast for global oil demand growth this year to 5.95 million bpd in its monthly report released on Tuesday, saying that “the recovery is very much leaning towards the second half of 2021”. This marks a 70,000 bpd rise from its prior forecast. The oil cartel’s recent decision to gradually unwind production cuts to meet rising energy needs, alongside a brighter demand outlook, boosted investor confidence. The WTI is trading at US$ 60.58 mark, the highest level seen in more than one week.

US Bureau of Labor Statistics released stronger-than-expected inflation figures on Tuesday, underscoring robust economic activity as businesses gradually returned to normal. The headline Consumer Price Index (CPI) climbed 2.6% YoY, largely attributed to rising energy (+13.2%) prices. On a seasonally adjusted basis, the CPI index rose 0.6% YoY, marking an eight-year high.

US CPI – March 2021, Not Seasonally Adjusted

Source: bls.gov

While recent economic data pointed to a strong economic rebound in US and China, uneven distribution of Covid vaccines around the globe and another viral wave hitting India – the world’s third largest importer for crude oil – cast a shadow on the demand outlook. The pause in the rollout of Johnson & Johnson’s vaccine in Europe may hinder the inoculation campaign in the region.

Looking ahead, the Energy Information Administration (EIA) will report weekly inventories data later today. Markets anticipate a 2.7-million-barrel draw in America’s stockpiles, marking a third consecutive weekly decline. A larger-than-expected fall may serve to underpin crude oil prices, whereas a smaller draw or rise would likely do the reverse (chart below). Thursday’s US retail sales and Friday’s Chinese Q1 GDP data will be closely eyed by traders too.

Source: Bloomberg, DailyFX

Technically, WTI broke above the “Falling Wedge” as indicated on the chart below. A solid breakout signals potential bullish trend reversal and may open the door for further upside potential with an eye on US$ 61.31 – the 38.2% Fibonacci retracement. An immediate support level can be found at US$ 59.75 – the 23.6% Fibonacci retracement.

The 20-, 50- and 100-day SMA lines are about to form a “Golden Cross” on the 4 hour chart, hinting at further price gains. The MACD indicator breached above the neutral midpoint and trended higher, suggesting that bullish momentum is building.

WTI Crude Oil Price – 4 Hour Chart