Brent Crude Oil weakens as traders look ahead to US CPI
- Oil price falls back: Brent Crude oil has fallen this morning. traders prepare for potential
- USD strength adds to the volatility: Markets are bracing for the crucial US inflation data tomorrow with the possibility of an upside surprise.
- Metals prices are also lower: Other commodities are also falling back, with metals prices also slightly weaker.
Supply and demand factors pulling oil around
There has been increased volatility in the oil price in recent days. The price of Brent Crude oil jumped on Friday by more than 2%.
This came after an announcement from Russia that it would be restricting its oil supply by 500,000 barrels per day (around 5% of its production) in March. The move was confirmed by Russian Deputy Prime Minister Novak who said that Russia:
“will not sell oil to those who directly or indirectly adhere to the principles of the “price cap”.
Reportedly, OPEC+ has no plans to increase production in response. It means that the legacy of this is for a higher oil price in the medium term.
The focus turns to US inflation this week
After Friday’s oil price rally, oil is pulling lower this morning. The focus is switching back to the implications for the near-term outlook and Tuesday’s US inflation data.
Inflation is expected to show a year on year decline to 6.2% (from 6.5%) on the headline CPI and to 5.5% (from 5.7%) on core CPI.
However, traders will also be watching the monthly growth which is expected to come in at +0.4%. Over the past three months that would mean an annualised run-rate of around 3.6% for core CPI.
January activity data has been more positive and there is potential for an upside surprise.
Anything above +0.4% MoM would increase concern at the Federal Reserve that inflation is not coming down fast enough and would further price in the likelihood of a 25 basis points rate hike in May.
The impact of this would be to likely dampen near-term oil demand as the Fed looks to take the heat out of inflation.
Oil will be volatile in the coming days
However, not only is there US CPI on Tuesday but also US Retail Sales (reflecting consumer demand) on Wednesday and the US PPI (another inflation gauge) on Thursday. All of these are likely to impact volatility in the oil price over the coming days.
These are all demand-influencing factors. The impact of these data on the outlook for the Fed and the USD will influence how the oil price moves.
Anything that would suggest a more restrictive monetary policy and a stronger USD would likely be oil negative near-term.
Oil drops back near-term, still ranging
Brent Crude oil (UKOUSD)
The price jumped on Friday but dropped back early this week. It seems very much as though a trading range of the past three months continues.
- Initial support is at $83.00 with the range support around $75.50/$78.25
- Friday’s high at $86.85 is now initial resistance with the range barrier around $89/$90.
- The daily RSI is oscillating between 37 and 62. This is very much a ranging configuration.
- The 21 and 55-day moving averages are flattening, reflecting the ranging near-term outlook.
These indicators all reflect the consolidation rectangle of recent months. The price is now longer in decline but is also yet to move higher.
WTI oil (USOUSD)
WTI oil is showing a similar ranging outlook for the technical analysis, over the past three months.
- Friday’s high at $80.25 is the initial resistance. This comes under the bigger range resistance between $81.50/$83.25.
- Initial support is at $76.45. The bigger range support some in between $70.25/$73.60.
- The daily RSI is oscillating between 36 and 58.
-
The 21 and 55-day moving averages are flattening.
The near-term outlook is turning lower on the concerns over US inflation data this week. However, a base formation seems to be developing now on the oil price.
Support and resistance levels for GBP/USD, Gold, FTSE 100, and more
This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. INFINOX is not authorised to provide investment advice. No opinion given in the material constitutes a recommendation by INFINOX or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
All trading carries risk.
