Crude oil futures (NYMEX: CL) is on course to extend a winning streak for a fourth consecutive week after gaining 2.52% week-to-date.
Supporting the bullish price action was U.S. Inflation data which suggests that inflation has peaked, with traders now expecting an 88.87% chance of the Federal Reserve pivoting and easing its hawkish policy by the end of the year.
The EIA’s inventory count saw a surge against an expected decline, signalling weakening demand, following aggressive buying in the prior week after OPEC announced an output cut. The outlook for crude oil remains positive, given the oil output cut by OPEC+, in line with the U.S. Energy Information Administration’s forecast of 0.5M barrels cut per day by OPEC for 2023.
Traders will look to the release of the U.S. PPI to gauge if producer inflation will prompt further rate hikes by the Federal Reserve, while the labour market provides cues on whether consumer spending remains stiff, fuelling inflation.
Following the breakout above the 100-day moving average and two levels of significance that acted as resistance, the Crude Oil Futures paused to consolidate near its year-to-date highs. The consolidation formed a symmetrical triangle pattern as trading volumes declined. Following the breakout above the consolidation pattern and the $81.97 per barrel (BLL) level, support was established, while the $87.75 BLL level acts as the nearest resistance level.
Bullish traders currently run the show and will likely be enticed to keep the crude oil prices on an upward trajectory. If volumes support, price action could be bid up towards resistance at the $87.75 level.
Alternatively, if bearish traders look to sell high, a retracement towards support at the $81.97 BLL level could be validated by declining volumes to the upside.
Despite inflation seemingly cooling, Crude Oil Futures’ downside exposure will likely be limited as supply-side constraints support prices, making the $87.75 BLL level probable. Headwinds will probably come from the sticky core inflation, which saw prices of goods and services, excluding food and energy, rise to 5.6%, ten basis points above the prior year’s reading, along with future U.S. interest rate hikes which benefit the greenback, making crude oil prices more expensive for importers.
Sources: CME FedwatchTool, Reuters, EIA, TradingView