Geopolitical Uncertainty

Oil prices continue to hug the underside of the 63.83 level resistance as we move through the back of the week. Monday’s rally has yet to see any proper follow through, though the market still feels poised for a break higher here. Trade uncertainty looks to be offset this week by rising geopolitical fears around the conflict between Russia and Ukraine. A counteract from Russia following Ukraine’s drone strike on Russian fighter jets shows that the war is still far from over, despite ongoing peace talks. With the threat of a further escalation now an ever-present theme for markets to navigate, oil prices look vulnerable to fresh upside in response to any headlines reflecting an uptick in hostilities.

Mixed EIA Data

Yesterday, the latest EIA crude inventories data offered further support for oil prices with US crude stores seen unexpectedly dropping by 4.3 million barrels over the prior week. This was deeper than the 2.8-million-barrel deficit forecast and shows a continued run on inventories following an initial deficit a week earlier.  While the headline data was positive, the sub-categories were less encouraging. Gasoline inventories were seen surging by 5.2 million barrels over the week with distillates up by 4.2 million barrels. In all, total products supplied (used a proxy for total energy demand) was seen down 0.9% vs the same time last year, reflecting an overall weaker demand environment.

Technical Views

Crude

For now, crude remains capped by the 63.83 level. However, the market looks to be carving out an inverse head and shoulders pattern with that level as the neckline. As such, a break above this region (and the bear channel highs (will turn focus to higher levels 67.45 and 72.61 next.