Crude Rallying This Week

Crude futures are trading around 7% higher on the week currently. The market has reacted sharply to news that Israel has rejected Hamas’ ceasefire offer with crude jumping around 3.6% yesterday. News of the ceasefire being rejected was accompanied by a heavy bombing onslaught on the city of Rafah. Traders are now sensing that with further violence to come, the risks of escalation are growing. Given the ripple effects the war is having (Red Sea attacks, Iranian rebel attacks elsewhere), the near-term outlook looks highly precarious, raising the risk of serious disruption for oil producers.

Oil Output Increasing

Indeed, the rally in oil this week comes despite news that non-OPEC producers Norway and Guyana are increasing their output. Additionally, Russia has been exporting a higher level of crude than was agreed during the latest OPEC+ deal.

EIA Reports Fresh Build

Earlier this week, the EIA reported a further 5.5-million-barrel build in US crude stores. The data reflects the heavy return of supply as refineries recover from previous outages due to extreme bad weather in parts of the US.

Key Risks

Near-term, the focus looks likely to stay on developments in the Middle East. As such, crude remains vulnerable to further upside on any incoming headlines regarding an escalation of violence in the region. Only any fresh news regarding ceasefire possibilities looks likely to bring crude prices meaningfully lower and this now looks to be very much an outside scenario. 

Technical Views

Crude

The rebound off the bull channel lows and 72.61 support level is gathering pace. Price is now fast approaching a test of the 77.64 level and with momentum studies bullish, the focus is on a break higher here and a test of the 82.59 level next, with the bull channel highs coming in just ahead. 

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