Oil Markets Ride High on Tight Inventories, But Global Oversupply Fears Cloud the Horizon 

Global oil markets are experiencing a turbulent week as US crude stockpiles declined unexpectedly, fueling a rise in prices and signaling stronger domestic demand. Brent crude climbed to $74.13 per barrel, while WTI rose to $70.56. Simultaneously, OPEC+ has hinted at postponing production hikes to balance weaker demand forecasts, especially with concerns about economic weakness in China. Yet, a recent World Bank report projects a potential oil oversupply in 2025-2026, which could add downward pressure. As inventories tighten and refinery output slows, the market watches for key support and resistance levels, with additional impacts from US economic data, potential Fed rate cuts, and Middle East developments poised to shape future trends.

Oil prices rose in global markets as US crude stockpiles dropped unexpectedly, signaling stronger domestic demand. Brent crude rose to $74.13 per barrel, and WTI increased to $70.56 as of the time of writing. The American Petroleum Institute reported a 573,000-barrel decline in US crude stocks, contrasting predictions of a 2.3 million barrel rise.

A World Bank report forecasts a potential oversupply in 2025-2026, which could pressure prices downward. US economic data and Fed rate cuts are expected to influence demand, while Middle East tensions have raised supply concerns. However, supply disruption fears are easing, and attention shifts to potentially softer demand and anticipated surplus next year.

US crude oil refinery inputs averaged 16.1 million barrels per day for the week ending October 25, 2024, with refineries operating at 89.1% capacity. Gasoline and distillate production both declined, while crude oil imports fell to 6.0 million barrels per day, down by 456,000 barrels from the previous week. Commercial crude oil inventories dropped by 0.5 million barrels to 425.5 million, 4% below the five-year average. Gasoline and distillate inventories also declined, and total petroleum inventories fell by 9.5 million barrels. Total products supplied rose to 20.9 million barrels per day over the past four weeks, up 2.7% year-over-year.

WTI Crude Oil prices gained support as OPEC+ considered delaying planned production hikes to counter weak global demand, particularly from China. The group’s output increase, initially set for October, would gradually add up to 2.5 million barrels per day by the end of 2025. Meanwhile, US inventory data showed unexpected draws across crude (-515k barrels), gasoline (-2,707k barrels), and distillates (-977k barrels), signaling market strength. Positive Chinese PMI data further lifted prices, pushing WTI futures above $69.00. However, potential ceasefire talks in the Middle East could influence market sentiment and price direction.

After reaching a recent low of $66.75 per barrel following a technical gap down, Crude Oil has begun an upside correction, with a Bullish Engulfing pattern forming two successive higher highs as of the time of writing. Prices are currently trading below the 20- and 50-period Exponential Moving Averages (EMAs), which indicates sustained downward momentum. Upon closer examination, the moving average lines are beginning to flatten, suggesting a potential pause in directional momentum. Additionally, the Momentum oscillator and the Relative Strength Index (RSI) remain below the 100 and 50 thresholds, respectively, confirming the downtrend. If sellers maintain control, traders may focus on the following support levels: 66.75, 65.07, and 56.91. Conversely, if bulls gain control, the estimated resistance levels are 72.45, 73.96, and 76.44.

In conclusion, global oil markets are navigating a complex landscape as US stockpile declines, OPEC+ production delays and Middle East tensions contribute to price support, while forecasts of an oversupply in the coming years introduce caution. With economic signals from the US and China playing pivotal roles, market participants are closely watching key technical levels and geopolitical developments to assess future momentum. The interplay of these factors underscores the market’s sensitivity to shifts in both demand expectations and supply dynamics.