At 10:50 GMT, Light Crude Oil Futures are trading $77.66, down $0.95 or -1.21%.

Federal Reserve’s Impact

Governor Waller’s emphasis on requiring more data to assess inflation before supporting rate cuts indicates a cautious stance by the Fed. This affects the crude oil market in two significant ways:

Stronger U.S. Dollar: A robust dollar could make crude oil more expensive for international buyers, possibly reducing global demand.

Economic Growth Outlook: Prolonged higher interest rates could slow down economic growth, indirectly impacting oil demand, particularly in the U.S., a key oil consumer.

Supply and Demand Factors

Despite these economic concerns, other factors may support oil prices:

Healthy Demand Indicators: JPMorgan’s high-frequency demand indicators show an increase in oil demand, partly driven by enhanced travel demand in China and Europe.

Refinery Activity: U.S. refinery run rates are showing signs of an increase, which could lead to higher crude oil processing.

Geopolitical Tensions

The ongoing tensions in the Middle East, especially increased hostilities in the Red Sea, are critical factors that could disrupt supply routes and create a risk premium on oil prices.

Inventory and Refinery Updates

U.S. crude inventories have recently risen, but less than expected. Major refinery outages have led to a decrease in distillate inventories, indicating potential tightness in refined product supply.

Short-Term Forecast: Cautiously Bullish

Given these factors, the short-term outlook for crude oil appears cautiously bullish. While the Fed’s stance and a strong U.S. dollar present challenges, strong demand indicators, recovery in refinery activities, and geopolitical tensions in key oil transit regions are likely to support oil prices.

The market is currently factoring in potential supply disruptions, evident in the widening premium of the front-month crude futures over the second month. However, this bullish sentiment is moderated by the ongoing inventory builds and the uncertain pace of refinery restarts.

Technical Analysis

Light crude oil futures are lower on Friday, but hovering just below a potential breakout price at $79.01. A move through this price will reaffirm the developing uptrend and will put the next target at $82.68 on the radar.

On the downside, the first support is the static level at $77.43. This is followed by the all-important 200-day moving average at $76.39, which is controlling the long-term trend.

Should the 200-day MA fail then prices would likely become rangebound with the 50-day moving average at $73.96 forming the support base and the 200-day MA, the range cap.