Oil retreats to three-month low as Fed squeezes out hopes of economic pickup

• Oil sinks further and falls to three-month lows near $76.00.
• Despite geopolitical headlines, oil has kept sinking this week. 
• The US Dollar Index trades back above 105.00 after surprisingly positive PMI numbers. 

Oil prices extend their decline on Friday and fall to a three-month low to levels not seen since February 26 near $76.00, erasing the previous week's gains and losing more than 4% this week. There were plenty of headlines for Crude prices to jump up on, such as Russia planning to move its borders in the Baltic Sea and fresh missile attacks from Russia into Ukraine, which could affect the supply of crude in the markets. Unfortunately, those headlines were no match for the US Federal Reserve (Fed), which is currently killing off any hopes or prospects of early interest rate cuts, that in turn would boost demand for Crude Oil. 

Meanwhile, the US Dollar Index (DXY), which tracks the performance of the US Dollar against a basket of six major currencies, has jumped back above 105.00 after the US preliminary Purchasing Managers Index (PMI) numbers for May revealed that all sectors keep expanding, with Services leading the charge. In the PMI report, the prices component showed an uptick as well, which could filter through into an already hot Consumer Price Index (CPI) release again, and would see the DXY benefit from inflow into the Greenback again. 

At the time of writing, Crude Oil (WTI) trades at $76.20 and Brent Crude at $80.55.

Oil news and market movers: OPEC June meeting not in person

• OPEC+ (OPEC members plus other oil-producing countries)  has just confirmed to Bloomberg that it will not hold its June 2 meeting in Vienna. Countries will participate in a video conference, which could point to no big decisions or changes to be announced, making it a non-event already in advance. 
• In addition to discussing rolling over current production cuts, the production capacity per member will be reviewed ahead of the individual targets for 2025. 
• Mexico produced nearly 6.4% less Oil in April than a year before, according to Bloomberg News. The decline means nearly 1.56 million barrels per day less. 
• Markets have completely discarded the possibility that the Fed will not cut interest rates before the summer, and chances for a cut thereafter are even diminishing. This kills off the assumption that a boost given by rate cuts to the US economy will not take place, and translates into more sluggish Oil demand for the rest of the year. 

Oil Technical Analysis: Stand still despite all moving parts

Oil prices are flirting with a three-month low to levels not seen since the end of February. The pivotal line in the sand is $75.27, where Oil prices are currently trading. With the outlook for more sluggish demand in the US and possibly in the rest of the world, the risk could be that more discounts need to be priced in, in order to keep demand balanced. Although a full unwind back to $68 does not look to be in the cards for now, a snoozing OPEC decision, which is not taking up more actions to underpin Oil prices, might see a $72.00 or $70.00 price tested over the summer.   

On the upside, a trifecta of Simple Moving Averages (SMA) is forming, with two of them falling in line with pivotal levels to have in mind. First up is the 100-day SMA at $78.72, which falls in line with the ascending green trend line as the first hurdle. Next, just ahead of $80.00 is the 200-day SMA at $79.57, near the pivotal blue line at $79.94. The last one is the 55-day SMA at $81.18, the target level once $80.00 got firmly broken. 

On the downside, the pivotal level at $75.27 is the last solid line that could support the decline. If this level is unable to hold, investors could expect an accelerated sell-off towards $72.00 and $70.00, erasing all gains for 2024. Further down, Oil price could test $68, the December 13 low. 

US WTI Crude Oil: Daily Chart