The price of West Texas Intermediate (WTI) US Oil has risen to $60.40, a 0.55% increase after three days of decline. This change is due to an unexpected drop in US crude oil inventories and hopes of a Federal Reserve rate cut. The US Energy Information Administration (EIA) reports a decrease of about 6.9 million barrels in US crude oil inventories for the week ending October 24. This is more than the American Petroleum Institute’s report, which noted a 4-million-barrel drop. Current stockpiles are around 6% lower than the five-year seasonal average, with notable declines in gasoline and distillate inventories.

Impact Of Federal Reserve Rate Cut

The expectation of a 25-basis-point rate cut by the Federal Reserve helps support higher WTI oil prices. A lower interest rate could weaken the US dollar, making oil cheaper and increasing global demand. However, OPEC+ plans to raise output in December by about 137,000 barrels per day, which might limit price increases. WTI finds support near the 100-period Simple Moving Average at $59.49. If it breaks above $60.84, prices could rise further. But if it falls below $59.49, selling may increase. The next support level is the low from October 20 at $55.97. Looking back to late October 2019, we saw a sharp 6.9-million-barrel inventory drop and a confirmed Fed rate cut, creating a strong bullish signal for WTI. However, current EIA data shows a surprising inventory increase of 2.1 million barrels. This suggests that near-term demand might be softening as winter approaches.

Monetary Policy Environment And Oil Prices

The monetary policy environment has changed significantly since the easing cycle of 2019. The federal funds rate has stayed steady at 4.75% for two quarters, unlike the earlier rate cuts that weakened the dollar and supported oil prices. This ongoing strict policy is a major reason why recent gasoline demand is lagging behind last year’s by almost 3%. On the supply side, the situation has shifted from the moderate OPEC+ output increase planned in late 2019. The cartel is now maintaining strict production cuts, which support prices and prevent a sharper decline despite weakening economic indicators. This discipline is the main factor keeping WTI crude above the $80 support level. With soft demand facing tight supply, we advise derivative traders to consider strategies for a range-bound market. Selling call and put options away from the current price can help collect premiums while the market figures out its next move. This strategy protects against the kind of uncertainty that was less common during the clearly bullish trend we saw in 2019. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now