USOIL Subdued, but Helped by Tight US Inventories & Aramco CEO Capacity Warning

  • USOil
    (${instrument.percentChange}%)

USOil Analysis

Yesterday's data by the US Energy Information Administration (EIA) showed that commercial crude oil inventories dropped by 1 million barrels in the week ended May 20, compared to the previous one. They stood at 419.8 million barrels, which is below the five-year average for this time of year, revealing tight conditions ahead of the driving season.

CEO of oil giant Saudi Aramco, warned of "very low spare capacity", speaking on Bloomberg on the sidelines of World Economic Forum in Davos. Mr Amir Nasser noted that spare capacity is "2% or lower in a market of 100 million barrels". [1]

Also on Wednesday, the US Fed released its accounts form the policy meeting earlier in the month, on which it had delivered its biggest rate hike in 22 years. The minutes were relatively hawkish, but did not add anything new.

These developments are supportive of USOIL which has been struggling for direction this week, as markets continue to grapple with the prospects of stagflation, fearing that the Fed's tightening along with other factors could plunge the economy into a recession.

Investors will get fresh updates on this front, as US GDP is due shortly and PCE inflation is expected tomorrow. Both releases are significant and could determine the next move of USOIL.

The commodity is in a consolidation mode this week, with the Bollinger Bands squeezed, awaiting form the catalyst that will break this pattern. From a purely technical prospective, a break higher seems more reasonable, since black golds sits above the EMA200 (black line) and the daily Ichimoku cloud, while the Relative Strength Index hovers above the 50 line.

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As such, bulls have the advantage and keep 115.17 in their crosshairs, but we are not sure they are ready to surpass it and challenge 122.04.

However, the lack of progress makes USOIL vulnerable to the EMA200 (106.90-70) and a break below it would put pressure on the downside and the ascending trendline from the December lows into question (at around 102.00).

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 30 Jun 2022 https://www.youtube.com/watch

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