Israel Ends Gaza Strikes, Oil Prices Respond with Decline
U.S. Oil Production Reaches 13.3 Million Barrels Per Day
CPI Report Tuesday Could Significantly Impact Oil Market
Middle East Tensions and Market Reaction
The early trading week saw a decrease in crude oil prices following Israel’s completion of its Gaza strikes. This development slightly eased Middle East supply concerns, which had significantly driven up prices the previous week. However, the closure of major Asian financial markets for holidays resulted in subdued trading activity.
Crude oil prices witnessed a 6% increase last week, largely due to escalated tensions in the Middle East. Israeli military actions in Gaza and the ongoing conflict had previously heightened market anxiety about potential supply disruptions. Additionally, attacks on commercial ships in the Red Sea by Iran-aligned Houthi militants continued to elevate concerns over logistics and supply.
U.S. Dynamics and Global Supply Factors
The U.S. reported a surge in oil and natural gas rigs, indicating a potential increase in production. This rise in domestic output, reaching 13.3 million barrels per day, provided a counterweight to supply worries. Meanwhile, Russia’s heightened crude exports and U.S. sanctions against specific entities have further complicated the global oil supply scenario.
Upcoming U.S. CPI Report and Market Implications
The forthcoming U.S. consumer price index (CPI) report on Tuesday is poised to significantly impact the U.S. Dollar and Federal Reserve policy. Higher inflation could strengthen the dollar, as it may prompt the Fed to adopt a more aggressive stance on interest rates. A stronger dollar typically reduces global demand for dollar-denominated crude oil, potentially leading to lower oil prices. Conversely, lower inflation may weaken the dollar, prompting expectations of a less hawkish Fed policy. This scenario could enhance the attractiveness of dollar-denominated crude oil, possibly driving up prices.
Short-term Outlook: Bullish
Despite these considerations, the short-term forecast for crude oil remains bullish. Geopolitical risks, especially in the Middle East, and supply concerns continue to exert upward pressure on prices. The market is poised to respond to the U.S. CPI data, with traders closely monitoring the balance between inflationary trends, dollar strength, and global demand trends.
Daily Light Crude Oil Futures
Light crude oil futures are inching lower early Monday, but the market remains in a position to continue its potential breakout over the long-term moving average.
The intermediate trend is up with the market trading decisively on the strong side of the 50-day moving average at $73.34. On Friday, crude oil closed on the bullish side of the 200-day moving average at $76.37, signaling a change in the long-term trend.
With upside momentum slowing a little early Monday, we expect traders to treat the 200-day MA like a pivot so watch for a choppy trade especially since volume is a little below average. Bullish traders will be betting on a sustained move over this moving average.
James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.