Oil Prices Forecast: U.S. Refineries Revival Boosts Market Confidence

James Hyerczyk
Updated: Feb 22, 2024, 12:39 UTC

Key Points:

  • Oil prices exhibit steady growth due to global supply limits.
  • U.S. refineries' improved performance uplifts market demand.
  • EIA report's impending release critical for future price direction.
  • Weakening US Dollar helping to fuel increased foreign demand for US oil.
Oil Prices Forecast

In this article:

Crude Oil Prices on the Upswing

Crude oil prices are currently experiencing a modest yet consistent uptick as of Thursday. This upward trend follows gains from the previous session, driven by indications of a tightening supply. The market’s strength is highlighted as it remains above the critical 200-day moving average support, noted on Tuesday. Traders are now watching for a potential climb over the January 29 main high of $79.01.

At 09:54 GMT, Light Crude Oil futures are trading $78.15, up $0.24 or +0.31%.

Spot vs. Futures Premium: A Key Indicator

A significant factor supporting this bullish outlook is the increasing premium of spot prices over near-date futures. This growing gap, becoming more pronounced recently, signals a strong demand outlook in the short term. Oil prices rose by 1% in Wednesday’s session, with contracts linked to near-term deliveries reaching their highest premium in months.

Refinery Recovery Bolstering Demand

The demand side is receiving a boost from the resurgence of U.S. refineries. Following several outages, refinery operations are improving, with BP’s Indiana refinery (435,000 bpd capacity) and TotalEnergies’ Port Arthur refinery (238,000 bpd capacity) at the forefront. This upturn is expected to elevate U.S. refinery run rates from 80.6% to 81.5% of total capacity, as per a Reuters poll.

Inventory Levels as a Key Price Driver

The forthcoming U.S. oil inventory data from the Energy Information Administration (EIA) is crucial for determining price direction. A significant reduction in these inventories is likely to further support oil prices. Traders are expecting the EIA report to show a 3.9 million barrel build in crude oil stockpiles. However, the recent American Petroleum Institute (API) report indicating an unexpected rise in crude stocks could restrain gains, making the official EIA data crucial.

Influence of a Weaker Dollar

A declining U.S. dollar is also contributing to supporting crude prices. As the dollar weakens, oil becomes more accessible for holders of other currencies, potentially increasing demand. The U.S. Dollar Index’s recent fall below the 200-day moving average is a significant indicator of this trend.

Short-Term Forecast

In the short term, the outlook for crude oil prices seems cautiously optimistic. The mix of a tightening supply, refinery restarts, and a weakening dollar creates a favorable environment. However, traders should closely watch the upcoming EIA inventory data, as unexpected results could influence the market. The crucial resistance level to observe is $79.01; surpassing this could indicate further bullish momentum. On the other hand, a larger-than-anticipated inventory build could constrain gains, making short-term trading strategies essential for market participants.

Technical Analysis

Daily Light Crude Oil Futures

Light crude oil futures are edging higher on Thursday with the market in a position to challenge the recent main top at $79.01. A trade through this level will signal a resumption of the uptrend. Increased momentum through this price will also put $82.68 on the radar, which is our next upside target.

On the downside, the key long-term support or 200-day moving average at $76.35 was successfully tested on Tuesday. This was a good sign because it indicated that buyers are willing to come in on the dips. If this moving average fails as support then the market will likely pullback into the 50-day moving average, currently at $73.82.

About the Author

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.

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