Oil Slides on Conflicting Red Sea Reports, EIA Numbers Ahead

OIL PRICE FORECAST:

Most Read: What is OPEC and What is Their Role in Global Markets?

Oil prices failed to maintain its momentum this week with a sharp selloff yesterday continuing through the Asian and European sessions today. US stockpile numbers released yesterday evening from the American Petroleum Institute (API) showed a buildup of 1.837 million barrels compared to 0.939 million barrels last week. Is the growth in inventory growth an indication of a possible slowdown in demand as well?

RED SEA SUPPLY INTERRUPTIONS

The tensions around the Red Sea shipping corridor have seen mixed reports over the past few days. This started with the supposed Red Sea task force which at this stage seems to be on its knees before it began. The alliance members, notably Spain and Italy have both tried to distance themselves through statements with many countries the Pentagon claim is involved seemingly shy to confirm their participation.

According to the Pentagon the force is a defensive coalition of more than 20 Nations to combat the rising attacks by the Houthis in Yemen in response to the Israel/Palestine conflict. The lack of commitment by some Nations comes as international pressure continues to ramp up regarding the death of 21000 people in the Gaza strip, with President Biden believing the response in the Red Sea needs to be separated from these attacks. According to David Hernandez, a professor of international relations at the Complutense University of Madrid “European governments are very worried that part of their potential electorate will turn against them”. Saudi Arabia and United Arab Emirates earlier proclaimed no interest in the venture.

Denmark’s Maersk MAERSKb.CO will sail almost all of its vessels travelling between Asia and Europe through the Suez Canal, while diverting only a small number around Africa. A detailed breakdown showed that while Maersk had diverted 26 of its own ships around the Cape of Good Hope in the last 10 days or so. For now, it appears the Suez Canal will be used with more than 50 Maersk vessels scheduled to use the route in the coming weeks.

Source: Refinitiv

LOOKING AHEAD TO THE REST OF THE WEEK

Looking to the rest of the week and the Geopolitical risk is likely to be the key driver and the most important risk to pay attetion to. Later today however we do have the EIA releasing its numbers with a print of around -2.85 million expected.

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TECHNICAL OUTLOOK AND FINAL THOUGHTS

From a technical perspective WTI did appear to break the long-term descending trendline on Tuesday but the pullback since leaves e questioning whether it was a false breakout. As things stand the Daily candle could provide hope today, with a hammer candlestick close likely to embolden bulls tomorrow and heading into the New Year.

Immediate resistance to the upside lies around the 75.00 mark before recent highs around the 76.00 handle comes into focus. There is a lot of hurdles to cross before the $80 a barrel mark comes into focus with resistance at 76.78, 77.84 and 78.55 all likely to provide some resistance.

WTI Crude Oil Daily Chart – December 28, 2023

Source: TradingView

Key Levels to Keep an Eye On:

Support levels:

Resistance levels:

IG CLIENT SENTIMENT

IG Client Sentiment data tells us that 84% of Traders are currently holding LONG positions. Given the contrarian view to client sentiment adopted here at DailyFX, does this mean we are destined to revisit the $70 mark?

For a more in-depth look at WTI/Oil Price sentiment and how to use it, download the free guide below.

Written by: Zain Vawda, Market Writer for DailyFX.com

Contact and follow Zain on Twitter: @zvawda