Oil extends losses for fourth straight session despite large decline in US stockpiles

• Oil price flirts with a break below $71.00 ahead of US PMIs and Jackson Hole. 
• Market concern grows on the question if OPEC made a policy mistake in its earlier meeting.    
• The US Dollar Index hits a new low for 2024 and flirts with the 101.00 barrier.

Oil prices eke out a very slight gain on Thursday, trying to find a bottom to the sharp sell-off seen in the last four trading sessions. The decline in prices can be attributed to concerns emerging on the supply side and despite the very large drawdown on US stockpile numbers reported on Wednesday. The supply-related concern comes after a Bloomberg report mentioned a Russian shadow fleet of worn-out tankers that are moving Russian sanctioned Oil across the globe. This shows that there is far more supply out there than markets are measuring, which doesn’t help prices when combined with a lacklustre demand outlook. 

The US Dollar Index (DXY), which tracks the performance of the US Dollar against six major currencies, gets caught in what one could call a “perfect storm”. After an already significant correction this week, more losses were added on Wednesday after the biggest downward revision in Nonfarm Payrolls in over a decade and the Federal Reserve (Fed) Minutes of the Fed’s July meeting revealed calls for a rate cut already back then. Not many, near nill, bullish elements seem to be able to support the Greenback. 

At the time of writing, Crude Oil (WTI) trades at $71.82 and Brent Crude at $75.70.

Oil news and market movers: More supply than you can imagine

• Swiss bank UBS has issued a note saying that a recovery to $90 per barrel is on the horizon if OPEC remains cautious into its next meeting in September and if the Chinese economy can gradually recover further, Bloomberg reports.
• Overnight Crude stockpile numbers from the US Energy Information Administration (EIA) revealed a drawdown of 4.649 million barrels, way above the expected 2.8 million drawdown. Last week’s number was a build on inventory of 1.357 million, Reuters reports.
• A Bloomberg report on Thursday shed light on a shadow fleet of tankers that are circumventing sanctions on Russian Oil. These are very outdated tankers, not up to standards, and with little to no insurance in case something goes wrong. It remains unclear how much additional excess Oil has been released into the market on top of the already flooded supply side.
• Traders see a potential policy risk by OPEC after it committed earlier this summer to let loose its voluntary production cuts. More production cuts might be needed in order to keep Crude prices at current levels, Reuters reports. 

Oil Technical Analysis: Oil and DXY look like twins

Oil sets forth another attempt to avoid another negative weekly close after having failed massively to do so earlier this week. Despite the large drawdown in US Crude stockpile numbers this week, it looks like WTI Crude and the US Dollar are in sync and that a recovery could not happen until both finally are able to turn around. US data this Thursday or the speech from Fed Chairman Jerome Powell on Friday could still spark that turnaround, supporting a less-weaker US Dollar and a small increase in Crude prices. 

On the upside, it becomes very difficult to be bullish with a lot of resistance levels nearby. The first element to look out for is the pivotal $75.27. Next up is the double level at $77.65, which aligns with both a descending trendline and the 200-day Simple Moving Average (SMA). In case bulls are able to break above it, the 100-day SMA at $78.45 could trigger another rejection as it did last week.  

On the downside, the low from August 5 at $71.17 is the best level for a bounce. Under $70.00, the $68.00 big figure is the first level to watch followed by $67.11, which is the lowest point from the triple bottom seen back in June 2023. 

US WTI Crude Oil: Daily Chart