Get 40% Off
⚠ Earnings Alert! Which stocks are poised to surge?
See the stocks on our ProPicks radar. These strategies gained 19.7% year-to-date.
Unlock full list

Oil Tests Key Support Post US Inventory Build: 2 Factors to Keep an Eye on

Published 02/01/2024, 04:14 AM
Updated 09/02/2020, 02:05 AM

Crude oil prices corrected after the EIA reported an inventory build of 1.2 million barrels for the week ending January 26.

In recent weeks, specific variables related to the geopolitical situation in the Middle East have come to the forefront.

The Red Sea basin, in particular, has drawn global attention as Houthi attacks on merchant ships persist despite intervention by the US-led coalition.

Counteracting concerns about the destabilization of a key trade route and demand pressures on oil prices are worries about an economic deceleration in China and a significant increase in US inventories.

These factors led to a correction in crude oil during yesterday's session, adding an element of risk to short-term forecasting due to the dynamic situation.

Let's take a look at the fundamental factors supporting the commodity's latest moves to better understand where we stand from a price-dynamic perspective.

1. Red Sea Situation a Key Driver of Oil Prices

The situation in the Red Sea basin is escalating again with a missile attack on a Russian tanker transporting crude oil, despite announcements that attacks will only be carried out against Israel's allies until the armed aggression in Gaza ends.

Beijing and Moscow may urge Tehran, which unofficially supports the Yemeni militants, to take action and compel the Houthis to make concessions as blocking one of the main trade routes could hinder China's efforts to regain rapid economic growth.

The European Union and individual European countries should also step in, among which Denmark, which has important interests in the developed maritime transport sector, is sending its ship.

Thus, the situation is becoming increasingly complicated and therefore much more difficult to predict.

In any case, in the most optimistic scenario, the international coalition together with political pressure mainly from China will force the Huti to stop attacks.

The pessimistic variant assumes further support for the rebels by Iran and the ineffectiveness of the Western coalition, which may convince carriers to abandon this route and cause a permanent increase in costs.

2. Evergrande Group on the Brink of Bankruptcy

Although, oil demand overall rose by 2.3 mb/d to 101.7 mb/d in 2023, the latest quarter showed a marked deceleration of 400 kb/d, which may continue in the coming months as economic activity in the world's major economies declines.

Meanwhile, the saga of the world's most indebted real estate developer Evergrande (HK:3333) continues.

A Hong Kong court's potential ruling to order the company's liquidation, following unsuccessful negotiations with creditors, looms as a potentially decisive blow.

It's important to note that this ruling is currently non-binding on mainland operations.

Given that the real estate sector is a primary driver of the Chinese economy, there exists a substantial risk that the crisis's spillover effect on the entire industry could significantly impact GDP growth.

This could in turn decrease demand, not only for commodities like copper but also for oil.

Crude Oil Technical View: Brent Corrects After Short-Term Uptrend

Brent crude oil's chart shows an ABCD formation, and the D point falls in confluence with a strong resistance area located in the price area of $84 per barrel.

Currently, the key area in the short term is the local round support of $80, the breakout of which could deepen the downward movement. Another problem area for sellers is the local lows near $76 per barrel.

***

InvestingPro: Empowering Your Financial Decisions, Every Step of the Way

Take advantage of InvestingPro ProTips and many other services, including AI ProPicks strategies on the InvestingPro platform with a discount of up to -50% for limited time only!

*readers of this article get an extra 10% off on our yearly and by-yearly plans with the coupon codes OAPRO2024 and OAPRO20242.

Claim Your Discount Today!

Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counseling or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. As a reminder, any type of asset is evaluated from multiple perspectives and is highly risky, and therefore, any investment decision and the associated risk remains with the investor.

Latest comments

Thank you _ so this means we have to go short?
Without having a trusted person to help you make it huge in investing dose sound good to me , my wife just made me happy since morning I haven't been able to keep down the happiness in heart I have nothing to say then God bless you for the payout form the last investment ...his wasp. (+)31612574318). 1001010010101010100101010100101010101010101001010101010101010100101010101010100101010101101010101010011001001000101100101100110101001010010110110011001010101010101100110100101011010101010101010101010100101101010100101010011010101001001101010101010010110011001011001010100101010110010101011001010110010101100101010010110010110011010011001010110010101010101101010101001011010101010010101100110010101011010101010101010100101010101011001010101010110010101010110101010101001
Just said you are shorter
yes
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.