Crude Higher But Capped By FOMC

Seventh Straight Fall in Crude Stores

Crude oil prices have been higher once again this week. The latest industry data showed US crude stores having fallen once again last week. The API reported a further drawdown on Tuesday, which was then confirmed by the EIA in its headline report on Wednesday.

The last report from the Energy Information Administration, covering the week ending July 26^th, showed that US crude stores fell a further 8.5 million barrels. This latest decline, which was well above the forecasted 25 million barrel decrease, marks the seventh consecutive week of declines in US crude inventories.

Gasoline & Diesel Stores Down

The data also reflected a further move lower in US gasoline inventories, which fell by 1.8 million barrels over the week. This, again, outstripped forecasts of a 1.4 million barrel decline. Distillate stockpiles, which include diesel and heating oil, also declined last week. These moved lower by 894k barrels, though this was just under the forecasted 1 million barrel decline.

Libya Supply Outage in Focus

Crude oil has also been supported this week by other elements. The main Sharara oil field in Libya, the country’s largest production site, reportedly closed on Tuesday due to a malfunction with a valve connecting the pipelines to the Zawiya oil terminal. The issue, which is ongoing, has seen Libya oil output dropping to post-March lows.

Middle East Tensions Underpinning Oil

Ongoing tensions in the Middle East have also played a role in keeping oil upside intact. The recent seizure of a UK oil tanker by Iran has prompted the US to formally request that Germany join the efforts of itself, France and the UK in securing the Strait of Hormuz.

This key shipping channel has been the source of a great deal of tension recently. Ongoing issues there are posing the very real risk of military conflict between the US and Iran, which is keeping oil underpinned for now.

Trade Talks Disappoint

The market has also been keeping a close eye on a fresh round of trade talks between the US and China.While early optimism around the trade talks helped boost oil earlier in the week, traders reacted with clear disappointment as the talks concluded without any notable sign of progress.

The White House has said that talks will continue in September. However, the lack of detail around them suggests that no real progress was made. The collapse of trade talks earlier in the year was a major downside driver for oil. So, the market is hopeful that this latest round of negotiations can deliver a deal.That being said, should the market starts to perceive that as unlikely, oil could well come under further pressure again.

USD Rallies on FOMC

Finally, the FOMC on Wednesday was a disappointing blow for crude bulls. USD surged higher in response to the Fed’s .25% rate cut. Such a move was well priced in and had even less impact as the Fed noted that it did not expect this to be the start of a lengthy easing cycle, just a mid-cycle adjustment.

Technical Perspective

For now, crude continues to trade within a triangular range, framed by the bearish trend line from 2019 highs and the bullish trend line from 2019 lows. To the topside, the next key structural level is the 60.00 zone. Above there, we have the 63.39 highs coming in ahead of 2019 highs at 66.59. To the downside, we have the 54.94 level, ahead of 2019 lows at 50.78.