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Crude Oil Trading Alert: API inventory decline + falling dollar drives oil prices higher, focus on EIA data

2024-04-24

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In the Asian market on Wednesday (April 24), U.S. crude oil fluctuated within a narrow range and is currently trading around $83.45 per barrel. Oil prices rose more than $1 on Tuesday as the U.S. dollar index fell to its lowest in more than a week and investors shifted their attention from geopolitical issues in the Middle East to global economic conditions. In addition, a sharp decline in API crude oil inventories also provided support to oil prices.

Brent crude oil futures rose $1.42, or 1.6%, to settle at $88.42 a barrel on Tuesday; U.S. crude oil futures climbed $1.46, or 1.8%, to settle at $83.36 a barrel on Tuesday.

The U.S. dollar index fell on Tuesday, hitting a two-week low of 105.61. S&P Global's previous survey showed that U.S. business activity cooled to its lowest level in four months in April due to weak demand. A lower dollar typically boosts demand for dollar-denominated oil from investors holding other currencies.

Specific data shows that the preliminary manufacturing PMI value fell to 49.9 in April from 51.9 in March. New orders shrank slightly, job growth slowed, albeit slightly, and supply chains showed signs of idle capacity. The preliminary service PMI value fell to 50.9 in April from 51.7 in the previous month.

Eurozone data provided additional support for oil prices. Data showed that business activity in the euro zone expanded at the fastest pace in nearly a year in April.

Andrew Lipow, president of Lipow Oil Associates, said: "There is almost no growth in the euro zone, which has been keeping the market under pressure, so any data that shows improvement will be supportive for the market."

Lipow added that market participants are looking away from geopolitical disruptions and instead focusing on economic indicators and the overall supply and demand balance.

Both benchmarks fell more than $1 earlier as tensions between Israel and Iran eased, plus lingering concerns about demand from Asia's biggest oil importers.

However, Israel's latest developments still provide some support to oil prices. Israel on Tuesday stepped up attacks across Gaza, launching its heaviest shelling in weeks, and the army ordered an evacuation of northern Gaza, warning civilians they were in a "dangerous fighting zone."

Air strikes and ground tank shelling were also reported in the central and southern Gaza Strip, with residents saying the bombardment has barely stopped.

Investors are also watching changes in U.S. crude oil inventories. The latest data from the API showed that U.S. crude oil inventories fell by 3.23 million barrels last week, the largest drop in the past six weeks, providing confidence to bulls. Investors also need to pay attention to official data released by the U.S. Energy Information Administration (EIA) in the evening.

A preliminary survey of analysts showed that U.S. crude oil inventories were expected to increase last week, while refined product inventories were likely to fall.

Investors are eyeing first-quarter U.S. gross domestic product data later this week and the March personal consumption expenditures (PCE) price index, the Fed's favored inflation gauge.

Alex Hodes, oil analyst at brokerage Stone "Leading the U.S. dollar to rise further will put more pressure on commodities."

As a reminder, Goldman Sachs said on Tuesday that the geopolitical risk premium for crude oil remains at a high level of $5-10 per barrel and is expected to fall further in the coming months. The bank maintained its forecast that oil prices will be stuck in a range, with Brent crude prices expected to be capped at $90 a barrel.

Goldman Sachs analysts said in a report that onshore crude oil inventories have increased over the past month as offshore crude oil is offloaded to shore, and moderately bearish fundamental factors also support the forecast for Brent crude oil prices to be capped at $90 per barrel. "OECD onshore inventories we track are rising - a key factor driving oil prices higher - as previously large volumes of offshore oil (partly due to diversions from the Red Sea) are now being offloaded to shore, driving physical tightness level of relief.”

Goldman Sachs also pointed out that the number of active drilling rigs in the United States rose to a seven-month high last week and said its forecast for Chinese demand was cut by 200,000 barrels per day this week due to lower refinery refining volumes.

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

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Crude Oil Trading Alert: API inventory decline + falling dollar drives oil prices higher, focus on EIA data

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