Oil prices rallied this week and are seeking a bottom on a weaker US dollar and from OPEC.
The Federal Reserve raised interest rates again and added a reasonably hawkish tone, but the dollar did not capitalise.
USOil – Daily Chart
Oil prices have shown the potential for a price bottom around the $70 mark and could make a charge for the resistance near $90 in the coming weeks.
Traders have turned positive on oil this week as China begins to reopen its economy. Still, the overall situation has followed OPEC, which announced in early October it would slash production. The group also repeatedly cut its demand outlook in recent months while in October. If OPEC’s forecasts for the rest of the year are accurate, then the global market should be balanced in the first quarter. Saudi Energy Minister Prince Abdulaziz bin Salman recently remarked that members must show “vigilance and caution,” indicating a continuance to defend the downside on oil.
The US dollar declined this week despite the Federal Reserve’s 50 bps rate hike. The central bank had warned that it would start slowing the pace of its rate hikes, and it is likely that any future rise in interest rates is becoming priced in.
Another bullish indicator for oil prices was an ability to shrug off a large build in crude inventories. Crude stocks increased by 7.82 million barrels, according to the American Petroleum Institute (API), after a drop of 6.42 million barrels in the previous week. Analysts had expected another decline of 3.91 million barrels.
US crude oil inventories have grown by 14 million barrels this year. In comparison, the nation’s Strategic Petroleum Reserves have sunk by nearly 15 times that number by 211 million barrels.