USOIL Caught Between Falling US Stocks and Russia-Ukraine

US crude oil prices (USOIL) were showing a downward trend  last week, however this looks to have changed a bit this week. After a relatively large volatility movement this week, USOIL is at $86.08 per barrel and UKOIL is eyeing the 89 mark at currently $88.91 as traders focus on developments in the Ukraine and stockpiles as Bloomberg cited unnamed sources as saying that the American Petroleum Institute reported a 875,000 drop. If confirmed it would be the 8th decline in nine weeks.

The high volatility in the US stock market, where all major indices have recorded large declines since the last time in March 2020, has clearly impacted the current movement of the USOIL price. The market’s focus on the FOMC meeting late Wednesday afternoon, which is expected to impact the US stock market, might put pressure on oil prices. In addition, the current geo-political situation has also affected the demand for oil where NATO began to respond to the Russian presence on the Ukrainian border by increasing the number of military personnel near the tense area. Any increase in these political tensions will have a direct impact on the oil market where Russia is the world’s third largest producer. Also Yemen’s Iran-aligned Houthi movement launched a missile attack on a United Arab Emirates base hosting the US military. This along with the US crude stocks fall and Biden threatening sanctions on Putin over any invasion, all contribute toa general support of the Oil market.

The USOIL price hit $87.86 last week, the highest level since October 2014. However, it continued to decline after that and re-tested the 23.6% Fibo level at $82.67 and this level has remained strong despite being tested repeatedly since last Friday. The $80 psychological level will be the focus if asset fails to break the 61.8% Fib. level at $85.20 and turns lower again. The RSI  is at 66 however the MACD lines have flattened in the positive territory presenting consolidation signs. The likelihood of a corrective movement is high however it remains dependent on demand factors and geo-political issues affecting the technical movement of oil prices.

Next in the agenda is  OPEC+, which will meet on February 2 to discuss the March production increase and is expected to stick to their plan and ratify another modest production increase.

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Tunku Ishak Al-Irsyad

Market Analyst

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