Oil trades near last line of support before substantial correction

• Oil retreats to $78.00 after a failed attempt to snap above $80.00 on Friday.
• More criticism emerges globally towards Israel and its approach to Gaza.
• The US Dollar Index steadies around 105.30 ahead of US CPI data later this week.

Oil prices edge up slightly on Monday, but levels are flashing red lights after closing nearly flat last week. The black gold has been unable to rally on the back of further rising tensions on the situation in the Middle East after the US suspended the delivery of certain weapons to Israel amid concerns over the offensive in Rafah. Meanwhile, speculation is mounting over OPEC+ not unwinding its voluntary production cuts at the upcoming meeting in June. 

Meanwhile, the US Dollar Index (DXY) is in the middle of a two-week range around 105.30 and looking for direction. Traders are starting to see possibilities ranging from a soft landing to a stagflation scenario. Markets will look at the US Consumer Price Index (CPI) numbers on Wednesday to see if the hotter-than-expected inflation readings recorded in the first quarter extend into April. 

At the time of writing, Crude Oil (WTI) trades at $78.06 and Brent Crude at $82.70.

Oil news and market movers: Easing further 

• Arab News reports that several Oil traders confirmed that part of the recent correction comes from the outlook of less demand linked to the US Federal Reserve (Fed) keeping rates steady for longer. A rate cut would give a boost to the economy and thus Oil demand.
• Goldman Sachs issued a report on Monday saying that they no longer expect OPEC+ to announce any partial unwinding of the voluntary production cuts at the June meeting.
• Bloomberg reports that Crude Oil Storages floating in tankers have fallen by 11% since last week. That would be the lowest level since February 2020 to only 55.92 million barrels as of May 10. 

Oil Technical Analysis: Hanging by a thread

Oil prices are flashing some red lights while trading around a risk level. With Oil prices right at the green ascending trend line, the risk of a snap below it would mean a possible downward movement first to $75.00 and next to $68.15, which would represent a 3% and 10% decline, respectively. . That would materialise as traders get more accustomed to the risk exposure in the Middle East. 

On the upside, the line in the sand remains at $79.73 with the 200-day Simple Moving Average (SMA). Once above that level, the double layer is coming up with the 100-day SMA and the red descending trend line at $78.23. In case of an upward extension above that zone,  there the road is open for $87.12 again. 

On the downside, the pivotal level at $75.28 is the last solid line in the sand that could end this decline. If this level is unable to hold, investors could expect an accelerated sell-off towards $72.00 and $70.00. That would erase all gains for 2024 and then Oil price could test $68, the December 13 low. 

US WTI Crude Oil: Daily Chart