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US Crude Oil Knocked Back By Shock Inventory Build As Fed Looms

US Crude Oil Prices, Charts, and Analysis

  • US crude inventories soared last week, catching forecasters out.

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  • Prospects for US demand are among the biggest worry for this market.
  • Still, prices may recover from last week’s sharp falls.

Crude oil markets are trading cautiously like most others on Wednesday in Europe as investors await the United States Federal Reserve’s March monetary policy decision, due later in the global day. On a more market-specific note, a shock rise in US crude oil inventories has knocked prices back.

The Fed is expected to increase borrowing costs yet again in response to stubbornly high inflation, but the extent to which recent banking stresses. embodied by the collapse of two midsize US houses, will weigh on its thinking is very much on market minds.

A rise of a quarter-percentage-point is the base forecast for the Fed Funds rate. Should it come, that would mark the ninth straight Federal Open Market Committee meeting at which interest rates had risen.

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Oil prices have gained quite sharply from last week’s fifteen-month lows, but the outlook is clouded by uncertainties over the world’s two largest national economies and the ongoing conflict in Ukraine. Bulls are looking forward to increased demand from China, as draconian and lengthy Covid restrictions ease. However, the possibility of a slowdown in the US economy, and maybe even a recession, bringing with it reduced energy demand, has to some extent capped the market.

There may already be signs of this in the US oil-stockpile numbers. Inventories increased by 3.3 million barrels in the week which ended on March 17, according to the American Petroleum Institute. The outcome was well ahead of expectations which centered around a 1.6 million barrel drawdown.

Beyond the Fed, the oil market will look to Energy Information Administration figures on Wednesday to see whether they tally with those inventory figures already released.

Still, a notable reduction in market jitters over the banking sector has seen a return of money to growth-linked assets such as oil and, should the Fed do as widely expected, it’s reasonable to expect that flow to continue, albeit in a nervy market prone to sudden reverses.

US Crude Oil Technical Analysis

Chart Compiled Using TradingView

The banking-related falls of the past week took prices well below the well-respected uptrend channel which had previously been solidly in place since early December 2022. This channel.

Unsurprisingly, given the speed and magnitude of those falls, prices are now well below the 20-, 50- and 100-day moving averages and, given a lack of market-specific shocks, should be in for a corrective rebound.

The first order of business for the bulls is probably to recapture and hold important psychological resistance at $71.00. Should this level be taken, it will be instructive for the short term to see whether it can hold on a daily or weekly closing basis. If it can, the market may well resume its broader uptrend, targeting the $75 level to get it back on track. Close-by support comes in at $67.18, which was the closing low of March 15. Should that give way, it’s likely that the lows of last week would face a quick re-test.

The idea that this market is now more likely to head higher is backed up by IG sentiment data. This finds 61% of participants bullish on US crude at current levels.

–By David Cottle for DailyFX

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