Oil Market Is Squeezed by Torpidity

Brent crude prices gained 1.4% to $68.02 per barrel this week, though the move remains confined to the $66.00–$68.00 support zone, suggesting little more than volatility within an extended sideways range.

Investor positioning reflects the lack of conviction. Large investors sold $700,000 worth of shares in the United States Oil Fund (USO) last week, only to buy back $6.6 million this week, underscoring uncertainty about the next directional move.

Monetary developments have had limited influence. The Federal Reserve’s 25 bp rate cut on Wednesday, its first since December 2024, and guidance for two further cuts this year were overshadowed by Chair Jerome Powell’s cautious tone. Powell cited inflationary risks and signs of economic cooling, briefly pushing oil down 0.8% before prices recovered to the $68.00 level.

Fundamentals remain supportive in the near term. U.S. Department of Energy data showed a sharp 9.28 million barrel draw in inventories last week, the largest in recent years, following a 3.93 million barrel build the week before. Geopolitical risks also lend support: Ukraine’s continued strikes on Russian oil infrastructure are curbing export capacity, while discussions among NATO members about banning Russian crude and refined products persist. Still, the probability of new restrictions appears low, given the economic burden of existing sanctions, particularly in Europe. The result is a stalemate that reinforces ongoing price consolidation.

Technically, the outlook is unchanged. The next decisive move hinges on whether the $66.00–$68.00 support zone holds. Next week, this zone shifts slightly lower to $65.00–$67.00, potentially tipping the balance. A breakdown would open the way toward $56.00–$58.00, with timing favouring such a move by late October. Conversely, if support proves resilient, a rebound toward $76.00–$78.00 remains possible.