Crude Oil Outlook: WTI Jumps After Oil and Gas Inventory Drop Saps Covid Fears

• Crude and Brent oil benchmarks get boost from EIA inventory drop

• Virus fears continue to weigh on prices amid Delta Covid wave

• Prices rise above the 20-day SMA, MACD turns higher with RSI

A bullish inventory draw in weekly data from the US Energy Information Administration (EIA) sparked some upward movement in crude and brent oil benchmarks overnight. Analysts expected a 2.93 million barrel decrease in US stockpiles for the week ending July 23, but the figure crossed the wires at 4.09 million barrels. In addition to crude stocks, the EIA data showed a decline in fuel products as well. This bodes well for the demand narrative, as gasoline products are viewed as a leading indicator for oil demand.

Oil prices took a hit earlier in July when the highly transmissible Covid Delta variant started spreading through major economies, causing demand-side fears. The new virus variant is likely sapping some demand, with Australia, South Korea, and other countries reenacting lockdown restrictions recently. However, other economies, such as the United States and the United Kingdom, continue to ramp up, cushioning the potential demand-side impacts.

That said, virus fears will likely continue to weigh on prices as lockdowns constrain demand in certain parts of the world economy. As the Asia Pacific region makes progress towards vaccination rates, fears over demand may subside. Alternatively, an acceleration in rates, particularly in developed economies, may see oil benchmarks move lower. Further weekly draws in oil stocks in the US will likely hedge those fears.

CRUDE OIL TECHNICAL FORECASTCrude oil pushed above the 20-day Simple Moving Average (SMA), putting prices on a more solid footing. Moreover, the MACD line is turning higher and looks near to crossing above the signal line, a bullish signal. The Relative Strength Index (RSI) is also trending higher after recently crossing above its 50 midpoint.

A drop lower could see the 20-day SMA or 70 psychological level step in to support prices. A deeper contraction would aim for a supportive rising trendline. Alternatively, if prices continue higher, the recent multi-year high at 76.98 will come into focus, which is just above the October 2018 high of 76.90.