Oil Prices Steady Ahead of U.S. Inflation Data and Rising Summer Demand

Oil prices held steady on Tuesday following a rise in the previous session, as investors awaited key U.S. consumer price data. The market was also buoyed by expectations of increased summer demand.

Rising Demand and Declining Stockpiles

Both Brent and WTI benchmarks saw a 3% rise last week, marking two consecutive weeks of gains. The U.S., the largest oil consumer globally, is entering its peak summer consumption period, leading to increased gasoline demand and a decline in oil and fuel stockpiles.

A preliminary Reuters poll on Monday indicated that U.S. crude oil stockpiles likely fell by 3 million barrels in the week ending June 21. Gasoline inventories were also expected to have decreased, while distillate stocks probably increased.

Independent market analyst Tina Teng commented, “The surge in oil prices was triggered by an optimistic demand outlook and reduced U.S. inventories. With the Northern Hemisphere entering a hot summer and the upcoming hurricane season, demand is expected to continue increasing in the coming months.

“Investor Caution Amid Inflation Concerns

Despite the positive demand outlook, investors remain cautious about further oil price increases due to concerns that higher interest rates could curb fuel consumption by slowing economic growth. The U.S. Federal Reserve’s ongoing focus on controlling inflation adds to this uncertainty.

The release of the personal consumption expenditures (PCE) index, the Fed’s preferred measure of price gains, on Friday is anticipated to provide more direction on interest rates. Delays in rate cuts would mean borrowing costs remain high for an extended period.

Dow Jones "flipped" and increased sharply again after PCE announced the same forecast, creating expectations that the Fed would reduce interest rates and increase interest rate

PCE – Personal Consumption Expenditures Price Index is the Fed's preferred index, instead of CPI pic.twitter.com/8mjybYdZSF

— The Darknet Index (@thedarknetvn) June 1, 2024

“The PCE data from the U.S. is a focus this week as it will provide clues about the Fed’s rate decision,” added Teng.

Geopolitical Factors Supporting Oil Prices

Oil prices also received support from continued Ukrainian attacks on Russian oil infrastructure, which threatened to reduce crude and fuel supply. On June 21, Ukrainian drones targeted four refineries, including the Ilsky refinery, a significant fuel producer in southern Russia.

In addition, the European Union has adopted a new package of sanctions against Russia over its war in Ukraine, adding 27 vessels, including those operated by Russian state-owned shipping firm Sovcomflot, to its list of sanctioned entities.

“Adding to this, the market remains on edge ahead of elections in Iran later this week. A more hard-line president could result in more confrontations with the U.S., Israel, and Saudi Arabia,” noted analysts at ANZ Research in a report.

Technical Analysis: Key Levels for USOIL

USOIL is currently trading at $81.65, down 0.07%. Key levels to monitor include the pivot point at $81.51. Immediate resistance levels are at $82.06, $82.55, and $83.05, while support levels are $81.06, $80.23, and $79.52.

The 50-day Exponential Moving Average (EMA) is at $80.03, and the 200-day EMA is at $78.93, suggesting a bullish trend as long as prices remain above these levels. In conclusion, USOIL remains bullish above $81.51.

A break below this level could trigger a sharp selling trend, so traders should monitor these key levels closely for informed decisions.

In summary, while oil prices are supported by rising summer demand and geopolitical tensions, investor caution due to potential interest rate hikes and economic uncertainty continues to influence market dynamics.

The upcoming U.S. inflation data will be closely watched for further cues on the direction of oil prices.