What's Next for WTI Ahead of the Weekly EIA?

As the US moves out of its refinery maintenance season, crude oil inventories may normalise. However, analysts continue to struggle to predict demand trends accurately.

Prices Remain Buoyant Ahead of Peak Driving Season

March has proven highly favourable for crude prices, with WTI crude comfortably breaking above $80 per barrel as the upward trajectory that began at the start of the year persists. Back-to-back early spring snowstorms bringing heavy snowfall to northern and northeastern regions will likely sustain energy demand at above-average levels. This could place additional upward pressure on prices already rising in the US. The average gasoline price nationwide exceeded $3.50 per gallon for the first time since December due to increasing feedstock prices. And this is before the start of the US's peak driving season, which typically stimulates higher demand.

Increased uncertainty has made it more difficult to forecast where oil prices could head next accurately. Last year, expectations of the US slipping into recession did not materialise. Meanwhile, China's demand has exceeded forecasts despite lacklustre economic performance. The two largest oil forecasting agencies, the Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA), have shown a record divergence in their demand projections for the coming year.​

Demand Projections and Supply Cuts Could Support Prices

The IEA had previously forecast slower global demand growth and declining US shale oil production. However, demand has remained robust while US output has risen significantly. The US has maintained its position as the world's largest crude producer as OPEC and its allies have collectively reduced supply by around 3 million barrels per day to boost prices. OPEC expects crude demand to increase this year while production cuts remain in place, leading to a supply deficit. With indications that the US economy will avoid a severe downturn and China's growth projected to rebound, several analysts are also predicting further gains across commodity markets, including for crude oil.

Tomorrow, Wednesday, the EIA will publish its weekly inventory data report, with a key focus on evaluating inventory levels in light of higher refinery run rates and whether this weighs on supply. US crude exports peaked over the winter months to meet more robust European demand, which also contributed to drawing down inventories as adverse weather temporarily slowed domestic production. As conditions improve in Europe, continued US exports may help to replenish stockpiles over time. However, unfavourable US weather could still disrupt this week's latest data expected to show a 1 million barrel withdrawal.

WTI May Correct from Wedge Pattern Formation

West Texas Intermediate (WTI) crude oil appears to be establishing a leading wedge pattern, often preceding notable corrections. Breaking below the swing high of $76 per barrel could enable a deeper pullback to the $72 level. However, if buyers can defend the key support at $80, the next major resistance below the recent peak of $94 lies at $90.​

Source: SpreadEx / Light Crude

Key Takeaways

While crude inventories may normalise as the US refinery maintenance season ends, demand remains difficult to predict. Some analysts foresee slower US shale growth and demand, but current indicators show robust consumption and production. OPEC expects demand to rise alongside continuing supply cuts, leading to a potential deficit. With major economies avoiding recessions, commodity prices, including WTI, are anticipated to rally further. The upcoming EIA inventory report tomorrow will give insight into inventory levels and any impact of increased refinery activity.​