Oil Finds Support as IEA Warns of Low Inventories

  • USOil
    (${instrument.percentChange}%)

USOIL Analysis

The International Energy Agency (IEA) released its latest monthly oil report today, in which it stresses the increased uncertainty of the oil market outlook [1], as forces of supply and demand class.

On the one hand, there are increased fears of a global economic slowdown, as the US Fed and other central banks around the world move aggressively with their monetary tightening. We have seen multiple downbeat projections form various institutions recently regarding global growth, while yesterday the International Monetary Fund (IMF) downgraded again its GDP forecast for the US to 2.3% for this year and to 1% for 2023.

On the other hand, Western sanctions against Russia and other factors, have created an extremely tight oil market. The International Energy Agency (IEA) warned of "critically low" global inventories today, although headline balances have loosened for now, due to "weaker-than-expected oil demand growth in advanced economies and resilient Russian supply".

USOil posted its first negative month of the year in June, when US CPI jumped and forced the Fed to a historic 75 basis points rate hike, while markets now brace for a similar move this month, which exacerbates recession fears and leads to further losses at the start of the third quarter.

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The commodity dropped to three-month lows yesterday and closed below the 200Day EMA, putting the broader supportive outlook into question. This move brings 86.55 into the spotlight, but fresh catalyst will be needed for a breach that could open the door to 78.23.

However, USOil rebounds today and the Relative Strength Index (RSI) did not follow lower – a divergence that can fuel further recovery. As such, we can see a return above 100.00, although the EMA200 and the daily Ichimoku Cloud offer an imposing roadblock at the broader 106.80-113.00 region.

Markets now turn to today's US CPI inflation report and the crude stockpiles, which could determine the next leg.

Nikos Tzabouras

Senior Market Specialist

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 13 Jul 2022 https://www.iea.org/reports/oil-market-report-july-2022

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