Oil appears headed for its second consecutive week of gains as U.S. reserves fall

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Oil prices are slightly retreating on Friday but appear set to close in the green for the second consecutive week, adding more than 7% in gains over two weeks. The reduction in U.S. reserves, combined with the southern U.S. belt preparing for the first tropical storms, could imply some short-term supply setbacks.

Meanwhile, the Dollar Index (DXY), which tracks the performance of the U.S. Dollar against six major currencies, is comfortably in the high 105.00 area, approaching 106.00. The movement began overnight when Nvidia (NVDA) lost $91 billion in market value in just one trading session, triggering a massive move towards the Dollar as a safe haven. On Friday, European Purchasing Managers’ Index (PMI) numbers indicated that the Eurozone economy is losing momentum, ahead of U.S. PMIs later this Friday.

On the other hand, the U.S. Energy Information Administration reported on Thursday that crude oil reserves fell by more than 2.5 million barrels this week, more than the expected reduction of 2 million, triggering another push for crude prices to exceed $80.00.

Technical Analysis of oil: The U.S. market asserting its weight

Oil prices have managed to leap above a key level by reaching $81.00. It will be crucial from here to see first if crude can withstand profit-taking and achieve a daily and weekly close above this level. When that happens, more upside could come into play towards the 2024 high of $87.12.

To the upside, the descending red trend line near $81.00 has been broken and now needs to prove its strength as support with a daily and weekly close above it. More room to move up towards $87.12, the year-to-date high (April 5). Previously, a relatively small pivot level would act as resistance near $84.00.

To the downside, the large band of Simple Moving Averages (SMA) should now function as support and prevent further moves below it. This means the 55-day SMA at $79.79, the 100-day SMA at $79.47, and the 200-day SMA at $78.99 should prevent any drop below $79.00. If these levels do not hold, another drop back to $75.00 could occur.