Crude Oil Prices Back Below The $80 Handle

Several factors have recently pushed crude oil prices below $80 per barrel, including easing tensions in the Middle East, declining inventories, and concerns over slower growth.

​On the Downslope, Weighed by Multiple Factors

Several events have coincided to push crude oil prices lower, with WTI dipping below $80 a barrel for the first time since March. Commodities have declined overall as the US dollar had strengthened ahead of the FOMC meeting on Wednesday. Data released prior showed inflation remained elevated, while the April ISM Manufacturing Prices Paid component came in higher than expected. Additionally, the Fed confirmed its hawkish stance, signalling that a rate cut is not in the cards soon.

Crude has faced additional headwinds, resulting in a roughly $5 swing lower over the week. The EIA reported a substantial build in inventories, with stockpiles rising 7.3 million barrels compared to a 6.4 million draw the prior week. As a result, inventory levels have now been at their highest since June of last year, pointing to a weakness in demand. The EIA report resulted in a 3% drop in crude oil prices.

A Defensive Outlook, with Likely Focus on OPEC+

With concerns over the Middle East easing without retaliation, WTI could suffer further losses. While Israel says it will complete its military operations in the final city under Hamas control, Egypt has resumed efforts for a diplomatic solution, reducing concerns that oil supplies could be interrupted. Additionally, recent Ukrainian drone strikes against Russian oil facilities appear to have caused limited damage.

Market concerns could then focus on demand issues as the OPEC+ meeting approaches, where production cuts will likely continue. US gasoline demand has been below 9 million barrels per day for four straight weeks, 1.3% lower than last year, leading refiners to reduce production rates. Combined with disappointing first-quarter GDP figures, expected continued high-interest rates are viewed as weighing on overall economic activity in the world's largest crude consumer.

WTI H&S Suggests Golden Correction

The recent slide enables a move towards $75, close to the golden correction zone of the $68-87 leg featuring a potential head-and-shoulders (H&S) pattern. With prices below the neckline near $81-82, WTI could decrease further to $77.5 and possibly weaken from there on. Nonetheless, if buyers flip the former resistance into new support, this could invalidate the pattern, allowing prices to return to the shoulder swing highs of $83.15 and $84.35.

Source: SpreadEx / Light Crude Oil

Key Takeaways

Crude oil prices dipped below $80 per barrel for the first time since March after data showed a substantial rise in US inventories and weaker gasoline demand. A stronger US dollar and elevated inflation have kept prices under pressure, along with other factors, including easing geopolitical tensions, falling inventories, and concerns over slower growth, contributing to the outlook. Additionally, the Fed just confirmed a hawkish stance. With Middle East tensions easing and limited damage from Russian oil facility attacks, prices could fall further unless the upcoming OPEC+ meeting to discuss production cuts reveals a surprise.