Oil holds gains as increasing geopolitical tensions offset US Dollar strength

• WTI trades back above $85 after whipsawing around it this week.

• Oil price rises near 1% despite EIA calls for a negative outlook on Oil demand.

• The US Dollar Index surges close to 106.00 and sets forth a fresh five-month high.

Oil prices are jumping higher again on Friday after the small 0.75% decline from Thursday. The move comes as commodities are soaring again fueled by geopolitical tensions and despite the fact that the US Dollar is stretching higher for a fourth straight day in a row this week. Meanwhile, the International Energy Agency (IEA) has cut its Oil demand forecast for this year and the next one, anticipating slower growth in 2025, due to a lacklustre economic outlook and the increasing market share of electric vehicles in the global car market

The US Dollar meanwhile is printing a staggering 1.8% rally in the US Dollar Index (DXY) after markets are increasingly expecting a bigger interest-rate differential between the Federal Reserve (Fed) and other central banks. This rate differential is separating the countries (and ergo the local currency) where central banks are in dire need to cut against countries from those countries where cuts are currently not needed. Robust US economic data points to the US as the leader of the countries where rate cuts under current conditions are not needed at all. 

Crude Oil (WTI) trades at $85.63 and Brent Crude at $90.19 at the time of writing.

Oil news and market movers: IEA against OPEC

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• The outlook for Oil demand from OPEC and IEA diverge substantially. While the IEA is calling for less demand in 2024 and 2025, OPEC on Thursday said it is watching summer demand very closely as it would not be able to handle any unforeseen uptick in demand.

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• Furthermore in the IEA report from this Friday: more than 3 million barrels per day will be added coming from non-OPEC projects, with Brazil as the biggest contributor.

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• OPEC output increased by 110,000 barrels per day against February’s data. Saudi Arabia and Kuwait accounted for the small uptick, according to Bloomberg. 

Oil Technical Analysis: Non-OPEC inflow 

Oil prices remain elevated with tensions in the Middle East nearing a new dynamic. After Iran vowed to retaliate against Israel or any US asset in the region, tensions are getting high as such an attack could drag the whole region back into a long drawn-out dispute with the risk of Oil delivery disruptions. Meanwhile, the bearish IEA report said that Brazil soon will add substantially more non-OPEC Oil to the markets. Although Brazil was set to join OPEC from the beginning of this year, that inauguration still needs to happen. 

If the high of last week at $87.12 gets broken, the $90 handle should come into grasp. One small barrier in the way is $89.64, the peak from October 20. In case of further escalating tensions in the Middle East, expect even $94 to become a possibility, and a fresh 18-month high could be on the cards. 

On the downside, $83.34 is the first level to have a look for after a very clean break and test for support on April 1 and 2. Should it not hold, $80.63 is the next best candidate as a pivotal supportive level. A touch softer, the convergence with the 55-day and the 200-day Simple Moving Averages (SMAs) at $79.32 should halt any further downturn. 

US WTI Crude Oil: Daily Chart, Source: TradingView.