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Crude Oil Price Forecast: Fed’s Rate Stance and Mideast Tensions Push Above $78

Despite multiple positive news surrounding the market, US Oil failed to gain significant traction and is trading above $78.00 on Friday. However, the lack of bullish momentum can be associated with the probability that the US Federal Reserve will maintain the higher interest rate for a long time.

Oil Price Chart - Source: Tradingview

US Federal Reserve official suggested that we should wait at least two more months before cutting interest rates.

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This gave some support to the US dollar and contributed to the US oil losses as the stronger US dollar typically makes crude oil more expensive for buyers using other currencies, reducing demand and pushing prices down.

On the positive side, crude oil inventory rose by 3.514 million barrels last week, down from the previous week’s 12 million barrel increase. Hence, this suggests upward pressure on oil prices.

Furthermore, the continued geopolitical tensions in the Middle East are raising concerns about possible disruptions in crude oil supplies.

This will likely lead to increased demand for crude oil, driving prices higher due to concerns over potential supply disruptions in the region.

Impact of US Interest Rate Decisions on Oil Prices and the Dollar

On the US front, Fed Governor Christopher Waller suggests waiting two more months before deciding on interest rate cuts. They want to see if recent inflation increases are a temporary fluctuation. Most Fed officials agree, worried that rushing rate cuts could cause problems.

This advice comes after good news about US jobs, making immediate rate cuts less urgent. This decision might hurt markets and make people less hopeful for rate cuts soon.

Therefore, the delay in US interest rate cuts could limit oil demand, potentially preventing crude oil prices from rising too much due to concerns about economic slowdown and higher borrowing costs.

Despite a hawkish stance by Fed policymakers, the US dollar failed to gain much support, possibly due to the risk-on market sentiment, which tends to undermine safe-haven assets like the US dollar. Therefore, the US dollar’s sluggish performance might provide some support to US oil to limit its losses.

Geopolitical Tensions and Their Impact on Crude Oil Prices

Israel has attacked Hezbollah in Lebanon, and Houthi militants in Yemen have targeted ships in the Red Sea. These actions raise concerns about disruptions in crude oil supply, which supports WTI prices.

Additionally, in Gaza, Israeli military actions have resulted in the deaths of 40 Palestinians and condemnation from local authorities. The crisis worsens as Israeli troops breach Nasser Hospital.

On the flip side, the European foreign ministers are calling for a ceasefire in Gaza due to fears over Israel’s planned Rafah operation. Meanwhile, the International Court of Justice is holding hearings on the legality of Israeli occupation in Palestine.

As per the latest report, the conflict in Gaza has led to significant casualties, with over 29,000 Palestinians dead and many more injured, along with 1,139 deaths in Israel since October 7.

Therefore, the geopolitical tensions, including attacks in Lebanon and Yemen, raise concerns about crude supply disruptions, supporting WTI prices.

Crude Oil Price Forecast: Technical Analysis

Crude Oil’s trading dynamics on February 23rd illustrate a slight decline, with the commodity shedding 0.62% to settle at $77.86. This movement positions Crude Oil just above its pivot point of $77.27, hinting at potential shifts in market sentiment.

Looking ahead, resistance is anticipated at $78.47, $79.25, and $80.14, delineating thresholds for bullish advancements. Conversely, support levels are identified at $76.31, $75.53, and $74.49, marking areas where buying interest may rekindle.

Oil Price Chart

Technical indicators, including a neutral RSI of 50 and a 50-day EMA at $77.59, suggest an underlying bullish trend, potentially reinforced by the current upward channel.

Therefore, Crude Oil’s market outlook remains bullish as long as prices hover above the $77.60 mark, indicating a continued upward trajectory barring any significant market disruptions.

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Arslan Butt
Index & Commodity Analyst
Arslan Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics.His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker.His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.
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