Oil prices test 100-SMA support ahead of EIA data
Oil benchmarks are recovering from Monday’s steep drop, bouncing off their respective 100-day simple day moving averages as a support level. US crude oil fell by nearly 15% over the past two weeks before trimming those declines to 10.7%, as measured from the 6 July peak when it hit its highest levels since 2014.
At the time of writing, US crude is trading back within its Bollinger band having resurfaced from oversold conditions, though it still remains in sub-$70/bbl territory.
Traders are now set to react to the incoming data about US crude inventories out of the Energy Information Administration (EIA) due at 2:30PM GMT today.
Markets are forecasting a decline of 4.5 million barrels last week while the whisper number is closer to the 5 million mark. That would be in stark contrast to the 806,000-barrel climb in US crude inventories last week as reported by the American Petroleum Institute (API).
If the API data proves right and is confirmed by the EIA figures, that would be the first weekly climb in US crude inventories since May. A buildup in US crude stockpiles would be seemingly at odds with the figures pertaining to fuel consumption, with gasoline demand recently hitting a record high going into the 4th of July weekend and with still some weeks to go before the end of the peak summer road trip season across the United States.
Should the EIA also today report an unexpected climb in US inventories, that could unwind some of the recent gains in US crude.
Delta variant could spoil demand recovery party
At the onset of the trading week, global markets had reacted to the delta variant’s threat, with a surge in cases already shuttering parts of Asia, even posing a threat to the Tokyo Olympic Games. This has invoked a healthy sense of caution through oil markets, that perhaps the rose-tinted outlook for the demand for oil was too far stretched. Already the dominant strain in the UK and US, should the delta variant force a lockdown redux in major economies, that could quickly unwind more of the 41% year-to-date gains in US crude futures.
Then add to those demand-side concerns the prospects of more incoming supplies from OPEC+, hence the sharpest single day decline in US crude futures since September.
Of course, the supply side of the equation also needed recalibrating in light of the OPEC+ deal that was sealed before markets began the new trading week. The alliance of major oil producers overcame an internal squabble to agree to gradually increase its output by 400k barrels a day per month until production reaches pre-pandemic levels. This prompted markets to dial back its expectations for a tightening physical market, though there remains substantive voices in the markets that still expect demand growth to outpace the incoming OPEC+ supplies, barring any rapid deterioration on the demand side.
All that said, the spread of the delta or future variants present a major risk to the supply-demand dynamics, and warrants close monitoring in ascertaining whether US crude has enough reason to post a new year-to-date high before 2021 is over.