- Israeli strikes on Gaza hit prominent members of Hamas on Wednesday amid ongoing ceasefire talks.
- Oil stocks increased by more than double the forecast last week, indicating a significant decline in demand.
- The US released its Consumer Price Index, which showed a surprise increase in March.
Oil prices rose on Wednesday as supply concerns overshadowed a build in crude inventories and a drop in Fed rate cut expectations. Investors grew concerned about supply as the war in Gaza continued.
WTI crude futures (Source: Nymex)
Notably, Israeli strikes on Gaza hit prominent members of Hamas on Wednesday amid ongoing ceasefire talks. Consequently, oil traders worry that the negotiations will stall and there might be a looming attack on Israel. Moreover, on Tuesday, Gaza claimed that Israel had not met Palestinian demands in the ceasefire proposal. The longer the war continues, the higher the chance that it will escalate to include other countries. Some of these countries are major OPEC producers, such as Iran.
https://blog.oneuptrader.com/analysis/technical-analysis/crude-oil-futures-edge-higher-rsi-bullish/If the war gets to Iran, it would mean significant disruptions to the oil supply. As a result, the market would grow tighter, especially since OPEC producers are cutting output. This will, in turn, lead to a surge in oil prices.
However, oil faced some headwinds, including a surprise build in US crude inventories last week. Oil stocks increased by more than double the forecast, indicating a significant decline in demand and exports.
Meanwhile, the US released its Consumer Price Index, which showed a surprise increase in March. This was the third time that inflation beat forecasts, showing that the downtrend has paused. As a result, investors expect the first Fed rate cut in September. A delay in rate cuts is bearish for oil as borrowing costs remain high for longer. Higher interest rates have a negative impact on businesses and the economy at large, reducing demand for fuel. Low demand weighs on oil prices.
Therefore, oil traders are eagerly waiting for US inflation to show a clear path to the 2% target so that the Fed can decide when to start cutting rates. In the meantime, the rate-cut outlook will keep shifting with incoming data, especially if it is upbeat.
Elsewhere, the EIA raised its forecasts for oil output in 2024. The agency now expects production to increase by 280,000 barrels per day, compared to its previous forecast of 20,000 barrels per day. Investors are now awaiting OPEC’s monthly market report for more insight into the outlook for oil.
