WTI prices fell slightly as the improved prospects of a ceasefire between Hamas and Israel could ease geopolitical tensions in the Middle East, putting pressure on WTI prices. As of now, WTI crude oil is quoted at $78.67 and Brent crude oil is quoted at $81.1.
The year-on-year growth rate of the overall CPI in the United States rebounded modestly to 2.9%, and the year-on-year growth rate of the core CPI unexpectedly fell from 3.3% last month to 3.2%. After the data was released, traders increased their bets on the Fed's June rate cut, and the possibility of two rate cuts this year increased.
"New Fed News Agency": The US CPI data for December is unclear, and the Fed is expected to remain on hold this month.
Beige Book of the Federal Reserve: Manufacturers are hoarding inventory in anticipation of tariff increases. Speech by Federal Reserve officials: ...
U.S. crude oil futures may retest the resistance level of $80.75 per barrel, and a break above this level may open the way to the range of $81.80 to $82.85 per barrel.
The contract has broken through the key resistance level at $80.10, which is the 261.8% level of the C wave starting from $68.42. This rise suggests that this wave may extend to the range of $83.50 to $84.56, formed by the 338.2% and 361.8% levels.
The resistance level of $80.75 seems to have triggered a correction, which is expected to be shallow and may be limited to the support range of $79.04 to $79.57.
On the daily chart, the contract has broken through the resistance level of $79.80, which is the 100% level of wave (c) from $66.61. This breakthrough confirms the extension of this wave to $84.84, as indicated by the descending channel.
The analysis shows that the higher target is $87.95, which may become a realistic target because the chart pattern from September 10 to November 18, 2024 looks like a double bottom, which also points to the target of $87.95.
The March contract of WTI crude oil futures closed at 78.71 yesterday, with a high of 79.39 and a low of 76.16. Among them, the closing price was above its 5-day, 20-day, 50-day, 100-day, 200-day and year-to-date moving averages. In addition, the US EIA crude oil inventory fell for the eighth consecutive week, and commercial crude oil inventories excluding strategic petroleum reserves fell by 2 million barrels, and total inventories were about 6% lower than the five-year seasonal average. At the same time, OPEC maintained its global oil demand forecast unchanged. The IEA said that with strong demand and increased supply risks, the global oil market is expected to face a smaller crude oil surplus than previously forecast.
I think that in addition to the new bullish information obtained yesterday, the oil market has also seen some short covering and the rolling of funds from February to January. The last time the March contract of WTI crude oil futures was close to $80 was on April 12, 2024, when the contract hit $79.48. The latest COT data shows that long positions in the US and Brent crude oil contracts hit an eight-month high. I think the short-term support level is $75 and the short-term resistance level is near the area above $78.5. Beyond that, crude oil still has a chance to hit the overhead resistance at $85, but round numbers like $80 are enough to constitute psychological resistance in themselves.
On the downside, $75 and $72.5 near the 200-day moving average provide support, while the main support level is $65. I wonder if OPEC+ will start to resume production increases before April if the US and Brent crude oil continue to show an upward trend next month. We think prices will be guided by the more important API and EIA crude oil supply and demand data this week.
We believe that crude oil's continued strength at the beginning of the year may continue, driven by more Russian crude oil being withdrawn from the market after sanctions. The new restrictions have increased the number of Russian crude oil tankers directly subject to sanctions by about three times, enough to affect about 900,000 barrels per day of crude oil. While Russia is likely to circumvent sanctions by using more shadow tankers and ship-to-ship transfers, we still expect Rosneft losses of 500,000 b/d over the next six months.
Beyond sanctions, there are other deeper reasons for the strength in the spot market: OPEC+ has largely adhered to its target quotas; non-weather-related demand has been stronger than generally expected; and non-OPEC supply growth has been lower than expected. In short, the market strength is likely to continue after weather returns to seasonal averages.
Last month, we noted that OPEC+'s postponement of planned production increases by three months to April 2025 and extension of the full elimination of production cuts by one year to the end of 2026 would ensure that the oil market is not oversupplied in 2025. By delaying the start of voluntary production cuts and flattening the slope of monthly increases, OPEC has effectively withdrawn a large amount of oil from the 2025 plan.
Our supply and demand model shows that under the new plan, OPEC production can increase without causing an increase in global inventories, even without considering compensation. Global crude oil demand is expected to increase by 1.31 million barrels per day in 2025, and non-OPEC supply growth will reach 960,000 barrels per day. The balance in the first quarter of 2025 is set at 200,000 barrels per day, the same as the EIA forecast. Even if Iran's export flow does not decrease throughout the year, Iran's total crude oil consumption in 2025 will be 100,000 barrels per day. The market has not yet fully digested the amount of oil canceled in the plan.
WTI crude oil futures hit $80 a barrel for the first time since August last year, and set a new high since July last year, because the new sanctions against Russia by Western countries began to affect crude oil supply, while US inventories tightened. Buyers of Russian oil are increasingly turning to other suppliers, with some countries including India saying they will ban sanctioned tankers from entering the country after the United States imposed its toughest sanctions yet. Freight costs have soared and the spot pricing model in the United States has also changed. This has added momentum to the already strong crude oil prices at the beginning of this year. On the other hand, contrary to the general expectation that global crude oil inventories will be in large surplus, US crude oil inventories have fallen for 8 consecutive weeks to the lowest level since April last year. However, oil price gains are likely to be limited to $81/barrel, with futures prices already hovering near the overbought area of the 14-day relative strength index.