Oil Slumps as Technicals Cap Rally Driven by Tighter Supplies
Oil fell after a key technical level provided resistance to a rally that has been driven by continued signs of tightening US crude supplies.
West Texas Intermediate futures slumped more than 1% to settle below $74 a barrel after earlier rallying close to their 200-day moving average of about $75.48. The inability to to breach the technical level, which has served as a ceiling for prices since October, pushed prices to settle almost $2 below its intraday high.
Despite the slump, the fundamental side of oil continues to signal tighter markets. Government data released Wednesday showed US crude stockpiles fell 959,000 barrels last week, the seventh straight drawdown and the longest streak of declines in three years. Traders are also bracing for frigid weather in the US, which has boosted demand for heating fuel and raised the risk of freeze-offs in production areas.
“Early indicators of oil demand suggest a strong start to January, likely driven by increased use of heating fuels in the Northern Hemisphere due to the cold weather,” JPMorgan Chase & Co. analysts including Natasha Kaneva said in a note on Wednesday. “We anticipate that oil demand will average 101.4 million barrels a day for the month, marking a 1.4 million barrel-a-day increase compared to the same period last year.”
Oil has had a strong start to 2025, with prices breaking out of a monthslong range, but many analysts continue to warn of a glut this year. The market is also bracing for Donald Trump’s second presidential term, with threats of tougher sanctions on Iran and tariffs on China.
In another sign of tightening supply, Russian data show that the country’s oil production was below its OPEC+ output target last month, after seaborne exports slumped to the lowest level since August 2023. Meanwhile, ports in the eastern Chinese province of Shandong, the top destination for Iranian crude, were urged to prevent US-sanctioned tankers from docking at their berths.
WTI for February delivery fell 93 cents to settle at $73.32 a barrel in New York.
Brent for March settlement slid 89 cents to settle $76.16 a barrel.
Source : Bloomberg
