Oil Drops as Technical Resistance, Profit-Taking Stall Rally

16 Jul 2023

Oil prices dropped from their highest point in 11 weeks as traders decided to secure their gains, and the commodity's 200-day moving average once more acted as a resistance level, preventing further increases.

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Both West Texas Intermediate and Brent are on track for their third consecutive week of growth as interruptions in supply in Africa and a decline in shipments from Russia have caused the market to tighten.

WTI futures finished the trading day at approximately $75 per barrel, marking a gain of about 2% for the week. The American benchmark has not surpassed its 200-day limit since August, although futures almost reached that level in April. Meanwhile, Brent closed below the $80 per barrel mark.

"Today, the trading activity is primarily influenced by technical factors, with the price of crude oil encountering notable resistance," expressed Rebecca Babin, a seasoned energy trader working at CIBC Private Wealth.

Low refining margins in certain regions of the US have also had a negative impact on feelings and have made it more difficult for prices to surpass the resistance level, despite positive macro signals, according to Scott Shelton, an energy expert at ICAP.

However, traders have expressed that the losses experienced on Friday are expected to be short-lived, taking into consideration both technical and fundamental aspects.

"It wouldn't be unfavorable if prices currently stabilize beneath the 200-day average for a few days, with the purpose of recharging some momentum and subsequently experiencing an upward surge," stated Fawad Razaqzada, a market expert at StoneX Group.

The recent gathering was fueled partially by problems with the availability of resources. Demonstrators closed down a significant oil field, named Sharara, in Libya towards the end of the week, after production from the smaller El Feel field was stopped earlier that day. Additionally, the flow of oil from the Forcados terminal in Nigeria has been halted in order to investigate the potential occurrence of a leak. This situation has arisen after indications that oil flows from Russia are finally beginning to decrease, four months after the country was supposed to reduce its output.

Traders will closely monitor the Federal Reserve's upcoming decision regarding interest rates, as well as observe the possible reaction from G-7 policymakers following the surge in prices for Russian crude beyond the set limit, according to Arne Lohmann Rasmussen, the research head at A/S Global Risk Management Ltd.

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