West Texas Intermediate (WTI) crude oil prices rebounded to $75.50 per barrel during subdued market trading on Thursday, reclaiming ground lost recently amidst concerns of oversupply. Energy traders shifted their focus from the looming threat of excess oil to the anticipation of a potential interest rate cut by the Federal Reserve (Fed) in the third quarter.
Reports from the American Petroleum Institute (API) and the Energy Information Administration (EIA) confirmed a notable increase in US crude oil inventories this week. Despite previous efforts to reduce supply, the rise in barrel counts persisted, indicating a challenge in curbing the flow of domestically produced oil. Expectations of increased demand ahead of the Memorial Day holiday driving season were not met, resulting in an accumulation of refined petroleum products downstream from crude oil production facilities.
After years of implementing voluntary production limits to support global oil prices, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, are considering phasing out these caps. The decision stems from the reliance of OPEC+ members on oil sales to balance their budgets, leading to reluctance in further limiting production. Although OPEC+ assured markets that any phase-out would be based on data, concerns over potential oversupply weighed on oil prices, pushing them to their lowest levels since February.
Market sentiment is largely influenced by expectations of rate cuts by the Federal Reserve (Fed). Rate markets are currently pricing in a 70% probability of at least a quarter-point cut by September.
Technical analysis of WTI crude oil shows a two-day recovery, with prices bouncing back from a recent low of $72.45. However, WTI remains below recent levels, trading below the 200-day Exponential Moving Average (EMA) at $78.78.
Bulls in the US crude oil market are targeting a return to the consolidation zone around the $78.00 mark. However, there are concerns of exhaustion, particularly as the 50-day EMA declines below the long-term moving average.
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