Oil Price Talking Points
The price of oil defends the advance from the monthly low ($65.01) amid a larger-than-expected decline in US inventories, and crude may continue to retrace the decline from the yearly high ($76.98) as it trades back above the 50-Day SMA ($70.55).
Oil Price Rebound Underpinned by Decline in US Crude Inventories
The price of oil trades near the weekly high ($72.60) as US inventories contract 4.089M in the week ending July 23 versus forecasts for a 2.928M decline, and crude may continue to exhibit the bullish trend from earlier this year even as theOrganization of Petroleum Exporting Countries (OPEC) agree to boost production “by 0.4 mb/d on a monthly basis starting August 2021.”
The development suggests the 2.108M rise in the week ending July 16 may have been a one off event as demand is expected to improve throughout the second half of the year, and the data prints may keep OPEC and its allies on a preset course as US production remains stagnant.
A deeper look at the figures from the Energy Information Administration (EIA) showed weekly field production narrowing to 11,200K from 11,400K in the week ending July 16, and the subdued recovery in US output may help to keep the price of oil afloat as OPEC’s most recent Monthly Oil Market Report (MOMR) emphasizes that “world oil demand growth in 2021 is forecast at 6.0 mb/d, unchanged from last month’s assessment.”
With that said, the price of oil may continue to exhibit the bullish trend from earlier this year as indications of stronger demand are met with limited supply, and crude may continue to retrace the decline from the yearly high ($76.98) as it trades back above the 50-Day SMA ($70.55).
Oil Price Daily Chart
Source: Trading View
- Keep in mind, crude broke out of the range bound price action from the third quarter of 2020 as it established an upward trending channel, with the price of oil taking out the 2019 high ($66.60) as both the 50-Day SMA ($70.55) and 200-Day SMA ($57.72)established a positive slope.
- The price of oil may continue to exhibit a bullish trend as the rally from earlier this year removes the threat of a double-top formation, but lack of momentum to test the 2018 high ($76.90) pushed crude below the 50-Day SMA ($70.55), with the Relative Strength Index (RSI) establishing a downward trend after flashing a textbook sell signal earlier this month.
- Nevertheless, lack of momentum to close below the $65.40 (23.6% expansion) region has pushed the price of oil back above the 50-Day SMA ($70.55), but need a break/close above the $74.40 (50% expansion) zone to open up the $76.90 (50% retracement) area, which largely lines up with the July high ($76.98).
— Written by David Song, Currency Strategist
Follow me on Twitter at @DavidJSong