Crude Oil lurches higher amid US inventory draws, fresh Middle East tensions

• WTI rallied into $78.00 per barrel on Wednesday.
• EIA reported another drawdown in US Crude Oil inventories.
• Markets further bolstered by a potential Fed rate cut in September.

West Texas Intermediate (WTI) US Crude Oil jumped back into $78.00 per barrel on Wednesday after the Energy Information Administration (EIA) reported another steeper-than-expected decline in US Crude Oil Stocks Change, adding to a recent downswing in US barrel counts. The Federal Reserve (Fed) held rates steady as markets broadly expected, with a path forward for a September rate cut, helping to bolster commodity risk sentiment.

According to the EIA, US Curde Oil Stocks Change for the week ended July 26 contracted another -3.436 million barrels, far below the forecast -1.6 million barrel decline and piling onto the previous week’s -3.471 million contraction in US Crude Oil supplies. The EIA noted that US Crude Oil output fell in May for the first time since January, but also highlighted that US supplied products of fossil fuel and petroleum products hit its highest levels since August of 2023.

The Fed stood pat on interest rates for the July rate call as markets had broadly forecast, and cautiously-optimistic statements from Fed Chairman Jerome Powell helped keep broad-market risk appetite bid into the high side after the Fed head laid out the blueprint for what the Fed would like to see in key data prints ahead of the September 18 rate call. The Fed is hoping for one last round of inflation data to confirm that price growth is headed for the 2% annual target, and continued easing in US labor figures.

Elsewhere, Crude Oil risk aversion took a step higher on Wednesday following confirmation that the leader of Iranian Hezbollah’s air force was assassinated this week. According to unconfirmed reports, Iranian officials are calling for military action against Israel in retaliation, a move that would see Iran step fully into the Israel-Palestine conflict. An escalation of involvement in the Gaza conflict would see shockwaves through global Crude Oil markets.

WTI technical outlook

WTI US Crude Oil recovered significant ground on Wednesday, rallying 5% from Tuesday’s eight-week low of $74.24. In a steep, one-sided recovery rally, WTI topped $78.00.

US Crude Oil remains notably on the soft side despite Wednesday’s recovery bid, trading on the low end of the 200-day Exponential Moving Average (EMA) just above $79.00, and price action is swamped out on the bearish side of a downside run that saw WTI close in the red for all but four of the last 18 consecutive trading days.

WTI hourly chart

WTI daily chart