The US oil market is experiencing a period of easing, marked by a decrease in active rigs and fluctuating oil prices. According to the Baker Hughes oil rig count, the number of active US oil rigs has dropped from 478 to 472. Despite some upward corrections, oil prices have continued their downward trajectory over the past week. Meanwhile, the European Central Bank is expected to lower key rates by 25 basis points following its January policy meeting, potentially influencing global economic conditions and oil demand.
A significant factor in the current state of the US oil market is the change in oil inventories. The American Petroleum Institute (API) reported an increase in US oil inventories by 2.86 million barrels, while the Energy Information Administration (EIA) recorded an even larger increase of 3.46 million barrels. These figures suggest a growing supply in the market, contributing to the bearish sentiment among traders. The Relative Strength Index (RSI) indicator supports this view, having broken below the reading of 50, indicating a bearish predisposition for WTI's price.
WTI's price action remains in a downward trend, with the 72.20 (R1) support line now acting as resistance. This development aligns with the Federal Reserve's decision to keep financial conditions tight, which could impact economic growth and oil demand in the US. Additionally, tariffs on US imports from Canada and Mexico are set to be implemented this Saturday, potentially tightening the US oil market further.
In the international arena, OPEC members may dismiss calls from President Trump to increase oil output. With oil revenue being crucial for financing national budgets, OPEC countries are likely to maintain their production limits. A price war between OPEC+ members and Western producers appears unlikely, as it could result in losses for both parties.
The subdued expansion of economic activity in the manufacturing sectors of the US and China adds another layer of complexity to the situation. In January, growth in these sectors has remained moderate, suggesting limited demand for oil. Furthermore, the advance GDP data release for the fourth quarter of the US is expected to show an annualized growth rate of 2.6%, slightly below the 3.1% recorded in the previous quarter.
The reduction in active US oil rigs as reported by Baker Hughes signals a potential slowdown in domestic production. This decrease could be attributed to several factors, including market conditions and regulatory changes. As oil prices continue to exhibit volatility, producers may be exercising caution in their operations.
Despite recent corrections, the overall downward trend in oil prices persists. The easing of the US oil market is evident in the increased inventories reported by both API and EIA. The larger-than-expected rise in inventories suggests a surplus in supply, further influencing price dynamics.
Looking ahead, the European Central Bank's anticipated rate cut could have far-reaching implications for global oil markets. Lower key rates may stimulate economic activity, potentially boosting demand for oil. However, uncertainties surrounding trade policies and geopolitical tensions could offset any positive impact.
The impending tariffs on US imports from Canada and Mexico add another layer of complexity to the market outlook. These tariffs, set to take effect on Saturday, may disrupt trade flows and affect supply chains. As Canada and Mexico are key suppliers of oil to the US, any changes in import dynamics could have ripple effects throughout the industry.
OPEC's decision-making process remains a critical factor in determining future oil prices. While President Trump has called for increased output, OPEC countries may prioritize their national interests and maintain current production levels. The potential for a price war between OPEC+ members and Western producers looms large but appears unlikely given the mutual risks involved.
The subdued expansion of economic activity in manufacturing sectors highlights ongoing challenges in global demand for oil. With growth remaining moderate in both the US and China, two major consumers of oil, market participants are closely monitoring developments that could influence consumption patterns.