Oil Steady Near Fresh Three-Month Lows as Fed Reduces Economic Revival Hopes

• Oil sinks further and falls to three-month lows near $76.00.
• Despite the geopolitical headlines, oil has continued to sink this week.
• The DXY Dollar Index is trading back above 105.00 following the surprisingly positive PMI numbers.

Oil prices extend their decline on Friday and fall to a three-month low at levels not seen since February 26 near $76.00, erasing the previous week's gains and losing more than 4% this week. There were many headlines that could have boosted crude oil prices, such as Russia's plans to move its borders in the Baltic Sea and new Russian missile attacks on Ukraine, which could affect crude oil supply in the markets. Unfortunately, those headlines were not enough for the US Federal Reserve (Fed), which is currently dashing any hopes or prospects for early interest rate cuts, which would in turn boost crude oil demand.

Meanwhile, the DXY Dollar Index, which tracks the performance of the US dollar against a basket of six major currencies, has jumped back above 105.00 after preliminary US Purchasing Managers' Index (PMI) numbers .US by May will reveal that all sectors continue to expand, led by services. In the PMI report, the price component also showed an increase, which could filter into an already hot Consumer Price Index (CPI) release again, and would see the DXY benefit again from the entry into the Dollar.

At the time of writing, WTI crude oil is trading at $76.42 and Brent at $80.79.

Oil news and market drivers: June OPEC meeting will not be in person

• OPEC+ (OPEC members plus other oil-producing countries) has confirmed to Bloomberg that it will not hold its June 2 meeting in Vienna. The countries will participate in a video conference, which could indicate that no major decisions or changes will be announced, making it already a non-event beforehand.
• In addition to discussing the extension of current production cuts, production capacity per member will be reviewed ahead of individual targets for 2025.
• Mexico produced almost 6.4% less oil in April than a year earlier, according to Bloomberg News. The decrease means almost 1.56 million barrels per day less.
• Markets have completely discounted the possibility that the Fed will not cut interest rates before the summer, and the chances of a subsequent cut are even diminishing. This eliminates the assumption that a boost given by rate cuts to the US economy will not happen, and translates into slower oil demand for the rest of the year.
• The National Oceanic and Atmospheric Administration (NOAA) has released its 2024 hurricane forecast and sees between 17 and 25 named storms and possible hurricanes for the US hurricane season. The main drivers are warm waters with the absence of El Child.

Oil Technical Analysis: Rate cycle does not soften as anticipated

Oil prices are flirting with a three-month low at levels not seen since late February. The dividing line in the sand is $75.27, where oil prices are currently trading. With the prospect of slower demand in the US and possibly the rest of the world, the risk could be that more discounting is needed to keep demand balanced. Although a full exit back to $68 does not appear to be in the cards for now, a sleepy decision by OPEC, which is not taking further action to support oil prices, could see a price of $72.00 or $70.00 tested during summer.

To the upside, a trifecta of Simple Moving Averages (SMAs) is forming, with two of them lining up with pivot levels to watch. First is the 100-day SMA at $78.72, which lines up with the green ascending trend line as the first hurdle. Then, just before $80.00 is the 200-day SMA at $79.57, near the blue pivot line at $79.94. The latest is the 55-day SMA at $81.18, the target level once $80.00 is firmly broken.

To the downside, the pivot level at $75.27 is the last solid line that could support the decline. If this level cannot be held, investors could expect accelerated selling towards $72.00 and $70.00, erasing all gains for 2024. Further down, the oil price could test $68, the December 13 low.

WTI Crude Oil: Daily Chart