U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Thursday while consolidating inside the key technical retracement zone that could determine the direction of the next major move.
Today’s early rally suggests investors are focusing on the bullish news – a greater-than-expected draw in crude oil inventories and a weaker U.S. Dollar, while shrugging off potentially bearish news – a sharp rise in gasoline stockpiles, an OPEC+ decision to stick to its policy of gradually increasing output and lingering concerns from oil production shutdowns caused by the impact of Hurricane Ida.
Potentially Bullish Factors
According to the U.S. Energy Information Administration (EIA), U.S. crude inventories fell by 7.2 million barrels last week to 425.4 million barrels. Analysts had expected a 3.1 million-barrel drop.
The dollar is hovering near a one-week low on Thursday as traders price in the possibility of a sub-par U.S. payrolls report that could delay the Federal Reserve’s plans to begin tapering its massive stimulus program.
The greenback fell on Wednesday after the ADP National Employment Report showed private payrolls rose by 374,000 in August, up from 326,000 in July but well short of the 613,000 forecast.
Other data showed U.S. manufacturing activity increased more than anticipated in August, but a measure of employment in factories fell to a nine-month low, likely due to a shortage of workers.
A weaker U.S. Dollar tends to drive up demand for dollar-denominated assets like crude oil.
Potentially Bearish Futures
On Wednesday, the U.S. Energy Information Administration reported that gasoline stocks rose by 1.3 million barrels during the week-ending August 27. This could be a sign of lower gasoline demand to come as driving seasons come to an end in Europe and the United States.
Meanwhile, OPEC and its allies, agreed to stick to a policy from July of phasing out record output cuts by adding 400,000 barrels per day (bpd) a month to the market.
Consolidating prices suggest investor indecision and impending volatility.
“What is not so certain … is whether demand will be able to grow as quickly as OPEC+ and the market predicts,” said Rystad Energy’s head of oil markets, Bjornar Tonhaugen, citing the risk of further coronavirus lockdowns to counter new variants of the virus.
Additionally, “Crude oil processing will probably take considerably longer to recover from the outages than crude oil production, which suggests that crude oil stocks will increase in the coming weeks,” said Commerzbank analyst Carsten Fritsch.
Technically, October WTI futures could develop an upside bias on a sustained move over $69.02 and a downside bias under $67.63.