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The US dollar maintains bullish momentum and the US dollar index is rising today for the fifth day in a row. At the time of writing, it is trading near 98.85 near the upper boundary of the range between the swing high of 99.42 and the swing low of 97.71.
US government bond yields and the dollar rose after the Fed signaled its intention to aggressively raise interest rates to curb inflation, which has reached a nearly 40-year high. In the comments this week, Fed Chairman Jerome Powell confirmed the possibility of a one-time interest rate hike of more than 25 basis points.
Meanwhile, despite the strengthening of the US dollar, oil prices continue to rise. Concerns about the consequences of new sanctions against Russian oil supplies and the absence of a nuclear deal with Iran continue to stimulate demand. Other major oil producers (besides Iran and Russia), Saudi Arabia, and the United Arab Emirates are unable to quickly increase production.
On Wednesday, WTI crude oil prices topped $114.70 a barrel, while Brent rose to $117.80 a barrel, gaining further support after the Energy Information Administration (EIA) reported another drop in US crude oil, gasoline, and diesel fuel reserves.
According to the released data, oil inventories decreased by 2.5 million barrels to 413.4 million barrels during the week of March 12-18, and are now about 13% below the 5-year average. Although US oil production was unchanged at 11.6 million barrels per day during the reporting week.
Gasoline inventories also fell by 2.9 million barrels to 238 million barrels and distillates, which include heating oil and diesel dropped by 2.1 million barrels to 112.1 million barrels. They are about 17% below the 5-year average, as the EIA note.
The EIA data was significantly worse than forecasts suggesting a smaller reduction.
Oil market analysts predict a further rise in prices if the military conflict in Ukraine drags on and a global energy crisis arises. The US and the UK have already imposed a ban on imports of Russian oil, although some countries, for example, Germany and Hungary, are against such a decision. The EU and NATO leaders will meet this week, and the meetings may result in the adoption of a new package of sanctions against Russia, primarily against its energy sector.
At the beginning of today's trading session, Brent crude oil futures jumped to $120.00 per barrel, and experts forecast further price increases, while there are signals from Russia about further export cuts. Thus, one of the pipelines with a capacity of 1.2 million barrels per day supplying oil to the Black Sea coast may be halted for long-term repairs.
According to oil market analysts, sanctions and difficulties with transportation financing may lead to a reduction of Russian oil exports by 3 million barrels per day (some reports indicate a reduction of up to 4.3 million barrels per day), and the oil market may be short of about 3% of the global supply. This volume will not be quickly replaced by other sources of supply, and oil prices will continue to rise. Back at the beginning of the month (March 7), Deputy Prime Minister of Russia Alexander Novak said that Europe will not be able to quickly substitute Russian oil, and the market price of oil may reach $300 per barrel or higher. It will affect not only European consumers, for whom the price of energy products will go up but also American consumers. Even if Russia's special military operation in Ukraine is finished within a short period of time, which already raises doubts among some analysts, negative consequences for the entire world economy are likely to persist for a long time.
Oil market participants will also pay attention to tomorrow's publication at 17:00 (GMT) of the United States Crude Oil Rigs report on active oil platforms in the US.
Previous data from Baker Hughes reflected an increase in the number of active rigs to 524 (vs. 527, 519, 522, 520, 516, 497, 495, 491, 481, 480, 475, 471, 467, 461, 450, 445, 433, 428, 421, 411, 401, 394, 410, 405, 397 in previous reporting periods). The number of oil producers in the US is increasing again, which is a negative factor for oil prices. Their next growth will also have a negative effect on oil prices, but it will have only a short-term effect. In general, there is still a tendency for their further growth.
The next OPEC meeting will be held next week. At the meeting in March, it was decided to increase oil production by OPEC+ countries in April 2022 by 400,000 barrels per day, up to 41.694 million barrels per day. The oil coalition believes that the oil market is well-balanced at the moment, and the current volatility is caused by geopolitical events.
The OPEC+ countries are likely to remain committed to this plan, which is unlikely to have a negative impact on oil quotations. The OPEC+ countries are expected to fully lift their production restrictions at the same rate of product build-up in September 2022.
From economic news today, which is expected to cause volatility in the financial market, investors will pay attention to the publication (12:30 GMT) of data on durable goods orders and capital goods (excluding defense and aviation) in the US (capital goods are durable goods used to produce durable goods and services), implying large investments.
Forecast for February: -0.5% (durable goods orders), +0.5% (capital goods orders excluding defense and aviation), weaker than previous values (+1.6% and +0.9%, respectively). This seems to be negative information for USD. It is likely that only data better than the previous values will have a positive effect on the US dollar.
Technical analysis and trading recommendations
As mentioned above, since the opening of today's trading session, Brent crude oil quotations have been rising again, touching $120.00 per barrel at the beginning of the trading day.
Based on a tough fundamental background, we expect further price growth. Technically, a breakthrough of local resistance at 120.00, which is today's high, could be a signal for entering long positions or increasing them.
The pullback to the short-term support levels of 115.00 (EMA200 on the 15-minute chart), 110.10 (EMA200 on the 1-hour chart) can also be used to build up long positions.
The immediate upside target is a recent local and multi-year high at 131.00.
Alternatively, in case of a breakthrough of support at 110.10, the downward correction might continue to the important short-term support at 103.26 (EMA200 on the 4-hour chart), and after its breakthrough to the support levels of 100.00 and 95.70 (swing lows).
A piercing of the key support at 83.50 (EMA200 on the daily chart) is likely to increase the probability of further declines. But only a breakthrough of the key support at 65.50 (EMA200 on the weekly chart) may return the price to the bear market.
However, my main scenario suggests that prices will continue to rise and aggressive buyers will probably find it possible to enter the market at current prices.
Support levels: 115.00, 110.10, 103.26, 100.00, 95.70, 87.70, 85.75, 83.50, 77.30, 65.50
Resistance levels: 120.00, 130.00, 131.00
Trading recommendations
Brent: Sell Stop 116.30. Stop-Loss 120.10. Take-Profit 115.00, 110.10, 103.26, 100.00, 95.70, 88.00
Buy Stop 120.10. Stop-Loss 116.30. Take-Profit 121.00, 122.00, 123.00, 124.00, 125.00, 126.00, 127.00, 128.00, 129.00, 130.00, 131.00
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