Oil Rises Towards $80 as U.S. Inventories Drop More Than Expected

An Unforgettable Event Elevating Trading Education 

Oil prices are rising rapidly on Wednesday, touching the highest level since May 30, supported by a larger-than-expected decline in U.S. inventories. Data from the American Petroleum Institute (API) showed on Tuesday that crude stocks fell by 2.428 million barrels in the week ending June 7, well above the expected reduction of 1.75 million and shifting from a build of 4.052 million the previous week. The Energy Information Administration (EIA) will release its own figures later this Wednesday, and analysts are also predicting a decrease in oil inventories.

Meanwhile, the U.S. Dollar Index (DXY) is trading above 105.00 as the dust settles following political turmoil in Europe, particularly in France, after the parliamentary election results. Traders are focused on U.S. data, with U.S. Consumer Price Index (CPI) figures ahead of the Wall Street open as the main event. This will be followed by the U.S. Federal Reserve (Fed) interest rate decision. Although no change in the policy rate is expected, projections from the dot plot and the Fed Chair Jerome Powell’s speech could move the DXY in either direction.

Technical Analysis of Oil Prices: The Fed Could End Any Recovery

Oil prices are rising, but any further advance depends on the Fed. Any indication that interest rates could remain high for longer would end oil traders’ aspirations of exceeding $80. If Fed Chair Jerome Powell delivers a hawkish speech in terms of not providing future guidance, destroying hopes of a rate cut for 2024, a downward move in oil could materialize. Given that China’s economic recovery is not advancing further, all hopes were pinned on the U.S. for a second economic boom and an increase in demand. With interest rates remaining high, this may not happen, and OPEC+ is ready to open its production back to normal capacity and saturate the market.

Looking upwards, the two key levels before $80.00 are the 100-day and 200-day simple moving averages (SMA) at $79.23 and $79.27, respectively. Then, the 55-day simple moving average (SMA) at $80.37 is a level with a lot of resistance where any recovery rally could halt. Once surpassed, the path seems fairly open to head towards $87.12.

The $76.00 marker continues to act as support with the $75.27 level playing a crucial role if traders still want to have a shot at $80.00 again. However, the risks are tilted towards another drop if the Fed adopts a hawkish stance, sending oil further below $70.00.