Supply Factors

Notably, U.S. crude stocks experienced a significant increase, with an 8.43 million barrel build reported for the week ending February 23. This data, sourced from the American Petroleum Institute (API), contrasts with declines in gasoline inventories by 3.27 million barrels and distillate stocks by 523,000 barrels.

Concurrently, the Organization of the Petroleum Exporting Countries and allies (OPEC+) are contemplating extending their voluntary oil output cuts into the second quarter, which could potentially tighten the market. Originally, OPEC+ agreed to cuts totaling about 2.2 million barrels per day for the first quarter, led by Saudi Arabia. Additionally, Russia announced a six-month ban on gasoline exports from March 1, further influencing supply trends.

Demand Factors

On the demand side, Federal Reserve Governor Michelle Bowman’s indication of a delay in U.S. interest rate cuts, citing ongoing inflation risks, could dampen economic growth and reduce oil demand. A stronger U.S. Dollar is also impacting foreign demand for the dollar-denominated asset. Furthermore, the latest U.S. sanctions on Russia pose challenges for Indian refiners in securing Russian oil, potentially affecting global demand patterns. India, a major buyer of Russian oil, faces increased complexities in annual supply deal negotiations due to these sanctions.

Market Forecast

In the short term, the oil market is facing bearish pressure. The significant increase in U.S. crude inventories, coupled with potential dampening of demand due to Federal Reserve policies and a stronger U.S. Dollar, are key factors contributing to this outlook.

While OPEC+ deliberations on extending output cuts could provide some support, the overall market sentiment remains cautious, leaning towards a bearish stance in the immediate future. However, conditions could change quickly if OPEC+ announces a production cut.

Official crude oil inventories from the U.S. Energy Information Administration (EIA) is expected to show a 3.1 million barrel build.

Technical Analysis

Light crude oil futures are edging lower on Wednesday after another failed attempt to breakout over the January 29 main top at $79.01. Additional resistance can be found at the November highs at $79.57 and $79.87.

On the downside, minor support is $77.43, followed by the 200-day moving average at $76.50.

Holding above the 200-day MA means buyers are still there providing support as they await potentially bullish news from OPEC+. This news may be the catalyst that drives prices through resistance. Obviously, crossing to the weak side of the 200-day MA will mean they didn’t get the bullish news they were expecting.