Market update: Crude oil crossroads ahead as markets eye new highs

OPEC+ production cuts and the global impact

The OPEC+ production cuts are projected to result in a reduction of over 100 million barrels in global supply by the end of September. This reduction, coupled with perceptions that the Federal Reserve is nearing the end of its tightening phase, spurred a bullish run throughout July and into the present month.

Fed's stance on interest rates

Interest rate markets currently forecast no further rate hikes in the foreseeable future. Instead, they anticipate a reduction in the Fed funds target rate by mid-next year. However, this optimism for a more relaxed Fed policy was somewhat dampened heading into Tuesday's session, following remarks from a few Fed representatives who emphasised the continuity of the current approach.

John Williams, the president of the Federal Reserve Bank of New York, pointed out that the policy would need to remain restrictive for a considerable period. He also didn't rule out further hikes if necessary. Federal Reserve Governor Michelle Bowman expressed similar sentiments, stating, "I expect that additional increases will likely be needed to bring inflation to the FOMC’s goal." Both Williams and Bowman emphasised the importance of incoming economic data in shaping policy decisions.

Market reactions to Federal Reserves' views

In light of these comments, the oil price recoiled from nearing its April peak. The WTI futures contract, which hasn't traded above U$ 83.53 since November 2022, softened going into Tuesday and is now priced below US $82.50. Meanwhile, the brent contract has descended below $ 86.00.

Market observers are keenly awaiting this week's inventory reports from the American Petroleum Institute (API) and the US Energy Information Agency (EIA) to glean insights into the tightness of the crude market.

WTI technical analysis

Currently, the WTI futures contract is maintaining its upward trend, even after retreating from a 4-month high the previous day. This recent peak of 83.30, just shy of the April high of 83.53, suggests the potential formation of a double top. However, a climb above 83.533 would invalidate this bearish pattern.

At present, the price is situated within a resistance zone. A breakthrough above might validate the bullish run's continuation, whereas failure to breach this zone could signal a market reversal.

Should the market trend downwards, support might be found at the recent low of 78.69, aligning with the 21-day simple moving average (SMA). Other potential support levels include the breakpoint of 77.33, and the previous low of 73.82, which aligns with the 100-day SMA.

Crude oil daily chart

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