WTI crude oil rebounds closer to $72

WTI tried to regain some ground on Thursday, it was moving back above $72.50, before settling at $71.88 per barrel as at the time of writing, yet it is still up by some 2.61% Crude prices are still well below their previous peaks. Investors continue to have doubts that output limits would offset losses in global demand. At the time of writing, Brent crude is up by 2.68%, trading at 76.764 per barrel.

With the Fed’s dovish turn on Wednesday, which resulted in a broad-based recovery in market mood, WTI crude gained more ground on Thursday, continuing a rally that started recovery rallies in most asset classes and drove the US dollar to new lows.

Crude oil prices are holding up as we approach the end of the trading week thanks to the weakening dollar and growing investor optimism about potential rate cuts from the Fed happening soon.

Bearish pressure has been building into Crude Oil markets since falling from late September’s highs just below the $94.00 handle, but overall market sentiment is on the high side as a result of the Fed changing their dot plot of interest rate expectations to include several rate cuts in 2024.

In practice, the oil cartel lacks structural policy tools to compel member states to follow production caps, and members who violate exporting quotas face no consequences. However, the Organisation for the Petroleum Exporting Countries (OPEC) has reaffirmed its commitment to drastic production cuts, at least on an administrative level.

Energy markets are still doubtful that OPEC’s dramatic production cutbacks will be enough to offset the world’s falling demand for crude, particularly if demand declines in major consumers of oil, like China. Despite this, US crude oil reserves dropped by 4.259 million barrels for the week ending December 8 according to Energy Information Administration (EIA) barrel counts, which unexpectedly fell this week. The depletion of 4.632 million crude barrels from the previous week is compounded by the overhead reductions. The markets had initially projected a minor decline of only 650K barrels.

Technically, US Crude Oil is down over 24% from its peak of $93.98 in late September, and WTI’s recovery comes at the end of a long negative run down the charts. WTI has closed lower than expected for seven weeks running.

WTI is still far under bear territory despite the short-term technical rebound, with the 200-day Simple Moving Average (SMA) high above the current price action close to the $78.00 handle. The 200-day SMA is about to cross lower, indicating a strong bearish trend on the 50-day SMA. This would present strong technical barrier to any further bullish extensions over the $74.00 mark.