Brent crude could come under renewed pressure if the Federal Reserve delivers a hawkish hike later in the day
Oil prices rallied on Wednesday in a knee-jerk reaction to the EU’s proposal to impose an embargo on Russian crude. Earlier today, European Commission President Ursula von der Leyen proposed to phase out supplies of Russian crude within six months as part of a sixth package of sanctions targeting Moscow.
Brent crude jumped 3% on the news, reversing yesterday’s losses amid resurgent supply concerns. Oil prices briefly surged to $109 a barrel before retreating back towards $108 a barrel in recent trading, staying elevated during the European hours.Adding to a more upbeat tone in the market, the API report showed late on Tuesday that US crude oil stockpiles fell by 3.5 million barrels last week versus -800,000 expected. The official data from the EIA is due later today. Should the report confirm a solid decline in inventories, Brent crude will derive some extra support from the release.
However, the upside potential remains limited at this point, especially as prolonged lockdowns in China keep clouding the outlook for energy demand. Also, oil prices could come under renewed pressure if the Federal Reserve delivers a hawkish hike later in the day. Aggressive comments from the central bank would lift the dollar across the board, thus pressuring commodities, including oil. In a wider picture, the uptrend in the oil market will continue to persist as long as geopolitical tensions surrounding Ukraine stay in the market focus.
Technically, Brent needs to make a decisive break above the $110 figure in order to retarget April highs seen just below the $115 mark. On the downside, the immediate support now arrives at $106.30 where the 20-DMA lies. As long as the futures stay below the mentioned highs, $100 a barrel remains in the market focus.