After expanding for seven consecutive weeks, U.S. crude stockpiles have swelled to the highest level since mid-2021 and may signal weakening demand. Inventory for the week stood at 16M barrels which tower above the 1.17 Million forecasted.  

Despite high crude inventory levels in the U.S., Brent crude oil futures (NYMEX: BB) wiped out early losses after gaining 2.40% from Wednesday’s lows. Prices rose following a report by the IEA suggesting demand is likely to increase by 2 million barrels per day in 2023, along with a surge in U.S. Retail sales signalling more robust economic activity. However, it is yet to be seen if the market will react to growing stockpiles appropriately in the coming days. 

Technical 

Brent crude oil futures have steadily trended upwards due to an uptick in Chinese oil demand following the loosening of Covid-19 lockdown restrictions. Support and resistance have been established at the $84.09 and $86.93 per barrel (BLL) levels, respectively.  

A bounce from support ensued as bulls drove the market higher before strong U.S. inflation data sent price back to support. Currently, bullish momentum is driving the market upwards from support at the $84.09 BLL level, with the former high at the $86.93 BLL level a key point of interest for bulls.  

If bears consider the excessive inventory levels as truly negative for oil prices, it is probable that price will be dragged downwards with the $84.09 BLL level one to watch.  

Summary 

The critical question every oil trader has on their mind is whether extensive inventories recorded this week represent a cooling off in demand at present. The $84.09 BLL level is pivotal as a breakout below it could signal growing bearish sentiment on the back of an oil demand nosedive in the short term. Should a surge in crude oil demand be realised in 2023, the long-term outlook for Brent Crude oil futures remains bullish. 

Sources: IEA, EIA, MoneyWeb, TradingView