Oil Prices Surge Over 2% as U.S. Demand Outlook and OPEC+ Strategy Fuel Optimism

Oil prices extended their gains on Thursday, buoyed by an unexpectedly sharp decline in U.S. crude and gasoline inventories, signaling robust fuel demand.

Data from the U.S. Energy Information Administration (EIA) revealed that U.S. gasoline stockpiles dropped to their lowest level in two years for the week ending October 25, defying analyst expectations. Crude inventories also experienced a surprising decline as imports fell, further fueling bullish sentiment.

According to a Reuters survey of nine analysts, the consensus was for an increase in both gasoline and crude inventories, highlighting the unexpected nature of the latest figures.

“The drop in U.S. gasoline stockpiles created a buying opportunity as demand proved stronger than anticipated,” noted Toshitaka Tazawa, an analyst at Fujitomi Securities.

Oil rallies as U.S. fuel demand soars and OPEC+ may delay output increase. Brent crude up to $72.90, WTI hits $68.93. U.S. gas stocks at 2-year low, sparking optimism. 🛢️⬆️ #OilPrices #MarketTrends pic.twitter.com/mpniECYcaZ

— DeskTrading | Market Pulse (@desktrading) October 31, 2024

The inventory report reflects renewed optimism in U.S. fuel demand, contributing to a broader rally in oil prices. West Texas Intermediate (WTI) futures gained more than 2% on Wednesday, despite a recent dip triggered by easing concerns over Middle East tensions.

The recent data signals a shift towards tighter market conditions as winter approaches, supporting the bullish sentiment in oil markets.

OPEC+ Considers Delaying Planned Output Increase

In addition to U.S. inventory data, reports indicate that the Organization of the Petroleum Exporting Countries and its allies (OPEC+) may delay a planned production increase scheduled for December. This potential delay could offer further support to oil prices, especially as global demand remains uncertain.

OPEC+ was originally slated to raise output by 180,000 barrels per day (bpd) in October, but this increase was deferred to December due to weaker market conditions.

Two OPEC+ sources told Reuters that the group is now reconsidering the timing once again, with a final decision expected at its next meeting on December 1.

Analysts suggest that if OPEC+ opts to delay the increase further, it could provide a critical floor for oil prices, with WTI possibly testing the $70 level in the near term.

“With concerns over soft demand, delaying the production increase could stabilize prices and maintain current support levels,” Tazawa added.

Middle East Developments Add to Market Stability

Geopolitical dynamics in the Middle East are also influencing oil markets, as Lebanon and Israel edge closer to a potential ceasefire agreement.

On Wednesday, Lebanon’s prime minister expressed optimism about a truce, while Israel’s public broadcaster published what it claimed was a draft agreement outlining an initial 60-day ceasefire.

"markets weighed a potential ceasefire between Israel and Hezbollah and rising OPEC+ crude supplies against a possible drop in U.S. fuel stocks and demand concerns."

Oil hovers near one-month lows with supply drivers back in focus https://t.co/89gU8MAahQ

— MichaelD (@mikeyd_47) October 30, 2024

While regional tensions have periodically affected oil prices, recent developments suggest a de-escalation that could reduce the immediate risk of supply disruptions.

However, diplomatic efforts to end hostilities in both Lebanon and Gaza are ongoing, and any reversal in these negotiations could impact oil volatility.

Daily Technical Outlook: WTI Crude Oil – October 31, 2024

WTI Crude Oil recently closed above its 50-day EMA at around $69, signaling potential bullish momentum. This level has now become a pivot point, with immediate resistance at $69.50 and further targets at $70.50 and $71.40 if the rally continues.

The Relative Strength Index (RSI) is positioned at 59.90, indicating moderate buying strength as the market consolidates. Support remains around $68.76, with a drop below this level potentially leading to further pullbacks to $67.90 and $67.30.

Key Insights:

• 50 EMA Breakout: Trading above the 50-day EMA signals possible bullish momentum for WTI.
• Resistance Levels: Immediate resistance at $69.50, with further targets at $70.50 and $71.40.
• RSI Positioning: RSI at 59.90 suggests cautious optimism; sustained buying may push prices higher.

In conclusion, the convergence of reduced U.S. inventories, potential OPEC+ policy adjustments, and easing Middle East tensions are creating a favorable backdrop for oil prices, with WTI positioning itself for potential gains if bullish momentum holds.