Crude Oil Firms as New Sanctions Offset Bearish Concerns

U.S. West Texas Intermediate crude oil futures are trading higher on Wednesday, recovering from earlier losses, as the threat of new sanctions on Russia renewed supply concerns. The move offset worries of weaker demand following a build in U.S. crude supplies and Shanghai’s extended lockdown.

At 10:49 GMT, May WTI crude oil is trading $103.35, up $1.39 or +1.36%. On Tuesday, the United States Oil Fund ETF (USO) settled at $74.78, down $2.08 or -2.71%.

The Bullish News

The United States and its allies on Wednesday prepared new sanctions on Moscow over civilian killings in northern Ukraine, which President Volodymyr Zelenskiy described as “war crimes.” Russia denied targeting civilians.

Proposed EU sanctions, which the bloc’s 27 member states must approve, would ban buying Russian coal and prevent Russian ships from entering EU ports. The head of the EU’s executive Ursula von der Leyen said the bloc was working on additional sanctions, including on oil imports.

The Bearish News

Demand worries mounted after authorities in top oil importer China extended a lockdown in Shanghai to cover all of the financial center’s 26 million people. Meanwhile, the stronger U.S. Dollar also made crude oil more expensive for holders of other currencies.

Prices were also pressured earlier by a surprise build in U.S. stockpiles. Late Tuesday, the American Petroleum Institute (API) reported a surprise U.S. crude oil inventory build of 1.08 million barrels for the week ended April 1. Analysts were expecting crude stocks to have fallen 2.88 million barrels for the same period. Additionally, distillate stocks climbed 593,000 barrels in the week, while gasoline stocks fell 543,000 barrels, the API data showed.

Daily Forecast

Traders will be seeking further guidance on stockpiles from the U.S. Energy Information Administration (EIA) report, due out later today at 14:30 GMT. According to the early estimate, traders are looking for the report to show a 2.9 million barrel draw in crude oil inventories.

Technically, the May WTI crude oil market is trying to establish a support base inside the intermediate retracement zone at $106.12 to $101.32.

Look for an upside bias to develop on a sustained move over $106.12. This could lead to a quick rally into a short-term retracement zone at $109.31 to $113.35.

A downside bias could develop on a sustained move under $101.32. This could trigger a break into the main bottom at $97.78. Taking out this level will change the main trend to down with the main retracement zone at $94.14 to $96.52 the next major target.

Overall, the tone is likely to be controlled by the extent of the new sanctions on Russia. However, another bearish surprise in the EIA report could also be the source of volatility.