CRUDE OIL PRICE OUTLOOK:
- Crude prices fell on Thursday as Japan extended Covid-related restrictions while Australia’s Victoria state imposed fresh lockdowns
- Worries about Iranian supply may hinder the upside as WTI arrives ata key resistance level of $ 66.50
- EIA reported a larger-than-expected draw in crude inventories for the week ending May 21st
Crude oil prices retreated slightly during Thursday’s APAC trade after gaining 7% over the last four sessions. Profit-taking ramped up as Japan extended the state of emergency in Tokyo and other key areas. Meanwhile, Australia’s Victoria state imposed fresh lockdown measures on Thursday in the wake of rising Covid-19 cases. Lingering viral concerns cast a shadow over the outlook for energy demand in the Asia-Pacific region, weighing on crude oil prices.
Daily New Covid-19 Cases – Australia
Traders are also assessing the impact from Iranian barrels if Washington and Tehran can strike a nuclear deal and pave the way for easing sanctions on the Middle Eastern country. Iranian crude oil exports have declined sharply since the US tightened sanctions in 2018, falling from over 2.2 million bpd to 0.09 million bpd in April 2021 (chart below). A full restoration of Iran’s output may add over 2 million bpd to global supply. This may disrupt a nuanced balance in the supply-demand relationship as OPEC+ moves towards lifting output caps to meet rising global demand.
An OPEC and non-OPEC ministerial meeting is scheduled on June 1st. Leaders of the oil cartel are widely expected to stick to their plan to gradually increase output from May to July. A potential return of Iranian barrels might be taken into consideration, reining in the coalition’s appetite to further increase supply any time soon.
Iran Crude Oil Total Exports – Past 5 Years
Source: Bloomberg, DailyFX
On the bright side, the Energy Information Administration (EIA)reported a 1.66-million-barrel decline in crude inventories, compared to a baseline forecast of a 1.05 million draw for the week ending May 21st. This underscored strong energy demand as North America enters the summer driving season and the economic recovery gathers pace.
Today, US GDP, durable goods orders and weekly jobless claims figures will be closely eyed by traders for clues about the health of the economy. Stronger data may underpin energy prices whereas weaker ones may lead to the reverse. Find out more from the DailyFX calendar.
Technically, WTI is challenging a key resistance level at 66.50 (the 200% Fibonacci extension) for a third time this month. A successful attempt may open the door for further upside potential towards $ 68.00. Another failed try however, may lead to a pullback with an eye on $ 62.23 (161.8% Fibonacci extension) for support. Negative MACD divergence suggests that near-term momentum may be tilted to the downside.
WTI Crude Oil Price – Daily Chart
— Written by Margaret Yang, Strategist for DailyFX.com
To contact Margaret, use the Comments section below or @margaretyjy on Twitter