In the short term, Brent is likely to stay above $110 a barrel on worries of potential supply shortage
Following four days of strong gains, oil prices edged lower on Wednesday as traders proceeded to profit-taking after Brent crude briefly exceeded $118 a barrel. Oil futures opened with a bearish gap to settle around $113 a barrel ahead of European trading session amid month-end position adjustments.
Oil traders are now stuck between worries about the global economy and tight oil supplies. The upside potential has been capped by concerns about slower demand in a potential future recession. On the other hand, Saudi Arabia and the UAE indicated earlier this week that there is little room for many producers to increase oil output further.
On the data front, the API reported a draw for crude oil for 3.8 million barrels last week while traders expected a draw of just 110,000 barrels. As a reminder, in the prior week, the Institute reported a build in oil inventories of 5.6 million barrels – the largest increase since February. Meanwhile, the Energy Information Administration said weekly inventory data will be released on Wednesday alongside with this week’s report. The data wasn’t released last week due to electrical problems, the agency said.
In the short term, Brent is likely to stay above $110 a barrel on worries of potential supply shortage. The nearest significant support arrives at $111.70, followed by the $111.30 zone. On the upside, oil prices continue to target the $125 handle that capped the rally earlier this month. In the immediate term, Brent needs to regain the $115 figure in order to overcome last week’s tops around $116.25. On the weekly charts, oil prices turned flat after the recent retreat towards $113 a barrel.