Middle East talks drag WTI lower after early surge on supply concerns

Crude oil prices were volatile on Thursday due to geopolitical concerns in the one direction towards calmer Middle East, and supply concerns in the other direction; triggering an earlier rally on the day. The likelihood of a negotiated ceasefire in Gaza is growing. The crude oil barrel counts from the EIA and API show a net decline.

On Thursday, US crude oil dipped down to roughly $74.00 per barrel after briefly reaching $79.00, as markets look for signs that global crude oil supply may be cracking under rising world barrel demand.

The progress in negotiations over a potential ceasefire in Gaza, sponsored by the United States, Egypt, and Qatar, has pulled energy prices lower as markets enter the Friday session.

Crude oil markets shrugged off the US Fed’s hawkish language on Wednesday, which dashed hopes of early rate cuts, and crude oil pinned to the top end after the Organization of Petroleum Exporting Countries (OPEC) announced Thursday that their announced output cap reduction of 2.2 million barrels per day in 2024 would remain unchanged.

OPEC is attempting to support rising global crude oil output, which is primarily driven by record-setting output levels in the United States, and energy markets rallied on reports that OPEC would try to exacerbate potential supply imbalances in the future by intentionally undercutting global crude oil demand.

Despite OPEC’s ironclad commitment to reducing crude oil output, major member states are starting to suffer the consequences of letting pumping stacks go cold. Saudi Arabia’s economy contracted 0.9% year on year, with Q4 GDP falling 3.7% compared to the same period last year, as decreased crude oil activity sapped growth from beneath Saudi Arabia’s feet. It is worth noting that the oil sector accounts for roughly 42% of Saudi Arabia’s GDP.

OPEC is attempting to support rising global crude oil output, which is primarily driven by record-setting output levels in the United States, and energy markets rallied on reports that OPEC would try to exacerbate potential supply imbalances in the future by intentionally undercutting global crude oil demand.

Technically, WTI suffered a significant loss, dragging US barrel bids below the 200-hour Simple Moving Average (SMA) near $76.00, and WTI is probing the $74.00 per barrel range at its lowest prices in a week.

US crude oil has fallen over 7% from a near-term high of $79.19, with WTI firming up a negative rejection from the 200-day SMA just shy of the $78.00 level.