Oil markets are under renewed pressure, with ICE Brent settling more than 1.6% lower yesterday. This decline follows news that OPEC+ is sticking to its plan to increase supply from April by 138,000 barrels per day (b/d). Market participants had been hoping for a delay, but OPEC+ maintained its course, reinforcing expectations of rising supply.
OPEC Production and Demand Concerns
OPEC oil production increased by 320,000 b/d in February, reaching 27.35 million b/d, according to a Bloomberg survey. Iraq was a significant contributor, adding 150,000 b/d to achieve 4.16 million b/d, surpassing its target of 4 million b/d. Additional output gains came from Libya, Venezuela, and the UAE.
On the demand side, the outlook remains clouded by tariff uncertainties. The Atlanta Fed’s GDPNow model now suggests a first-quarter GDP contraction of 2.8%, a stark shift from the 3.9% growth forecasted four weeks ago. US tariffs on China, Canada, and Mexico are also expected to weigh on demand, with Canadian crude potentially facing increased discounts due to export capacity limitations.
European Gas Prices Hold Firm
European natural gas prices moved higher yesterday, with TTF closing over 2% up. The rise reflects fading hopes for a Russia-Ukraine peace deal. EU gas storage is critically low at just under 38% full, compared to 62% last year and a five-year average of 49%. The need to refill storage suggests continued support for gas prices unless storage targets are eased or Russian pipeline flows resume.
Technical Analysis: Elliott Wave Perspective on US Oil
We have been discussing the descending triangle pattern in US oil for a while now, and with this recent fundamental catalyst, the chart is looking increasingly poised for a potential breakdown. The attached daily timeframe chart illustrates a clear Elliott Wave structure, with the market currently in the latter stages of a complex correction.
Elliott Wave Structure Explained
The price action since the peak at Elliott Wave Theory’s Wave 5 has unfolded into a large corrective pattern, which resembles a descending triangle. This pattern typically signals a continuation of the preceding trend, which in this case, is bearish.
- Primary Waves: The chart shows an A-B-C-D-E structure, characteristic of a contracting triangle.
- Wave B Analysis: The market is in Wave B of the triangle, subdividing into a smaller a-b-c-d-e structure.
Focusing on Subwave ((D)) of Wave B
The recent price action appears to be part of the subwave ((D)) within Wave B:
- Wave ((D)) Characteristics: Subwave ((D)) has traced a complex corrective move and has formed a lower high under the downtrend line.
- Bearish Implications: The failure to break above the trendline, coupled with the downward momentum, increases the probability of a move towards the support level near $67.
- Key Level to Watch: The horizontal support around $67 aligns with previous lows, and a decisive break below this level could open the door for a sharper decline, potentially targeting the $60 level or lower.
Conclusion: Will Support Hold?
US oil is at a critical juncture, with the triangle’s support level being tested. If subwave ((E)) of Wave B unfolds as anticipated and leads to a breakdown, it could mark the start of a new impulsive wave lower. Conversely, a hold at support might lead to another bounce within the triangle. Traders should closely monitor price action around the $67 mark to gauge the next move.
