- Technicals and fundamentals are conflicting in the oil market.
- Tail risks, supply-demand dynamics point to the upside, but technically, the bears are in play below 72.50.
WTI crude oil prices climbed on Thursday, currently trading at $71.81 and higher by 2.2% following a move from $69.88 that reached a high of $72.00.
Expectations of tighter supplies through 2021 has helped the price of oil to continue to recover following a sharp move higher the prior day.
Oil had been pressured a the start of the week after members of the Organization of the Petroleum Exporting Countries and other producers including Russia, collectively known as OPEC+, announced that they would agree on a deal to boost oil supply.
The news that 400,000 barrels per day would be coming on to the market between August to December to meet growing demand sank energy prices momentarily.
The combination of the fear of the spread in the delta variant also hurt the industry.
However, investors rethought the outlook and figured that demand was still set to outstrip supply in the second half of the year.
”Look past the noise, energy markets are set to tighten at a fast clip,” analysts at TD Securities argued.
”We estimate that the market will remain on a tightening trajectory.”
”We argue that firm demand, hindered shale supply and the cautious monthly increase in supply from OPEC+ should not be enough to prevent a deep deficit in the coming month, fueling stronger prices and tightening spreads.,” the analysts added.
”Most importantly, US drivers continue to fuel the recovery in energy demand, where mobility restrictions may be less likely to take place. Overall, the data doesn’t support the demand fears.”
Meanwhile, US Energy Information Administration data showed that crude inventories in the United States, the world’s top oil consumer, rose unexpectedly by 2.1 million barrels last week to 439.7 million barrels, up for the first time since May.
Inventories at the Cushing, hit their lowest since January 2020 last week.
Gasoline and diesel demand, according to EIA figures, also jumped last week.
WTI, technical analysis
The price is testing the critical resistance area between 70.20 and 72.50.
The confluence of the 61.8% and 21-day EMA makes for an important price range from which a breakout would be expected to see a sustained upside continuation.
On the other hand, failures here could well lead to a downside extension.