Following a greater-than-anticipated drop in US stockpiles, oil prices have stopped falling for three days. Crude may stage a stronger comeback in the days to come as it breaks the string of lower highs and lows from the previous week.

CRUDE OIL PRICE STOPS THREE DAY SELLOFF AS US CRUDE INVENTORIES CONTRACT

US data prints seem to support oil price as the 7.056M reduction in crude stockpiles improves the forecast for consumption. However, it is unclear if these developments will impact OPEC, which aims to boost production by “0.1 mb/d for September 2022.”

While the most recent Monthly Oil Market Report (MOMR) warns that “volatility in futures markets remained fueled by expectations of lower GDP growth,” and the price of oil may face challenges ahead of the next Ministerial Meeting on September 5, as the update reveals that “for 2022, world oil demand is foreseen to rise by 3.1 mb/d, a downward revision of 0.3 mb/d from last year,” evidence of strong demand may encourage OPEC to boost production throughout

In turn, “total oil consumption is estimated to average 100.03 mb/d,” up from the projection of 100.29 mb/d from July, while “the 2023 forecast has maintained the same at 2.7 mb/d,” with demand expected to reach 102.72 mb/d.

The predictions indicate that OPEC will increase production as energy demand is anticipated to increase in 2023; nevertheless, the restricted supply indicators may help maintain the price of oil as US output narrows for the first time in five weeks.

A closer examination of the Energy Information Administration (EIA) data reveals that weekly field production decreased from 12,200K to 12,100K in the week ending August 12 from 12,200K the previous week. Given the current state of the market, the price of oil may soon rebound as signs of strong demand are balanced out by signs of supply-side constraints.

Despite this, oil price may stage a more robust recovery over the next few days as it breaks the string of lower highs and lows from the previous week. However, the recovery from the monthly low ($85.73) may only be a short-term correction as long as crude cannot hold above the low from February ($86.55).

Daily Crude Oil Price Chart

As it breaks the string of lower highs and lows from the previous week, the oil price appears to be finding support ahead of the former-resistance zone around the October 2021 high ($85.41). The close above $88.10 (23.6% expansion) increases the possibility for a move towards the $90.60 (100% expansion) to $91.60 (100% expansion) region.

With a break over the monthly high ($98.65), the $100.20 (38.2% expansion) zone becomes accessible. The next area of interest is located around $93.50 (61.8% retracement) to $95.30 (23.6% expansion).

The 50-Day SMA ($101.69) has a negative slope, and the lack of momentum to hold above $88.10 (a 23.6% expansion) may prompt another run at the October 2021 high ($85.41); thus the recovery from the monthly low ($85.73) may end up being a near-term correction.