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Analysis: Crude Oil Market Facing Strong Dollar Pressure Analysis: Crude Oil Market Facing Strong Dollar Pressure

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Mixed Performance of Crude Oil and Gasoline

The May WTI crude oil (CLK24) experienced a decline of -0.57 (-0.70%), while May RBOB gasoline (RBK24) closed down by -1.70 (-0.63%). This moderate drop in crude oil and gasoline prices is primarily attributed to the pressure of a stronger dollar on energy prices. In addition, technical selling has contributed as prices approached overbought levels following a climb to a 4-1/2 month high earlier in the week.

US Economic News Boosting Energy Demand

Today’s US economic updates revealed stronger-than-expected results, bolstering energy demand and supporting crude prices. Weekly initial unemployment claims dipped unexpectedly by -2,000 to 210,000, displaying a robust labor market contrary to forecasts. Moreover, the Mar S&P U.S. manufacturing PMI surged to a 1-3/4 year high of 52.5, exceeding expectations of a decline. February existing home sales also outperformed predictions, climbing +9.5% m/m to a 1-year high.

Global Factors Influencing Crude Prices

The recent Ukrainian drone attacks on Russian refineries, damaging significant oil processing facilities, have limited Russian fuel export capabilities. JPMorgan Chase highlighted the potential offline capacity of 900,000 bpd following the attacks, infusing $4 of risk premium into oil prices.

Chinese Demand and IEA Forecast

Chinese crude oil demand continues to show strength, with record processing levels and heightened fuel consumption, indicating a positive trajectory for prices. The International Energy Agency (IEA) forecasted a potential deficit in global oil markets through 2024 with OPEC+ adhering to current production cuts. However, a surplus could emerge if OPEC+ opts to increase oil output.

OPEC+ Production and Compliance Challenges

Despite OPEC+ extending current crude production cuts until June, concerns remain over compliance. Reports suggest that production levels of Iraq and UAE exceeding quotas alongside questionable Russian compliance may hinder price stability. Increased geopolitical tensions in the Middle East further add uncertainty to the market.

Storage Data and US Inventory Report

A decrease in crude in floating storage points to a bullish trend in prices, indicating a potential supply constraint. The latest Energy Information Administration report underlined US crude oil inventories below seasonal averages, alongside stable production levels and rising active oil rigs in the country.

Final Thoughts

As the crude oil market navigates through a dynamic landscape shaped by global economic events and geopolitical developments, investors are urged to monitor closely the interplay of factors influencing prices. The resilience of crude prices amidst various challenges underscores the market’s complexity and the need for a multifaceted approach to analysis and decision-making.

More Crude Oil News from Barchart

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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