Oil News: Crude Tests Key Support Zone as Demand Uncertainty Looms

Oil Prices Face Volatility as Supply and Demand Forces Collide

Crude oil markets saw significant swings last week, driven by supply concerns, geopolitical developments, and shifting demand expectations. While early gains were fueled by tightening Russian and Iranian exports, the latter half of the week brought bearish pressure from rising U.S. crude stockpiles, hawkish Federal Reserve policy, and potential breakthroughs in Ukraine peace talks. Traders are now assessing whether demand recovery can offset the growing downside risks.

Last week, Light Crude Oil Futures settled at $70.74, down $0.26 or -0.37%.

Supply Constraints Initially Support Prices

Early in the week, oil prices found bullish momentum as supply-side risks emerged. Russian crude production slipped below its OPEC+ quota, falling to 8.962 million barrels per day, while U.S. sanctions on Russian oil shipments created logistical bottlenecks. Iran also faced increasing export restrictions due to new U.S. sanctions, reinforcing expectations of tighter global supply.

These disruptions, combined with technical strength, encouraged traders to push crude prices higher. With WTI climbing above key moving averages, momentum suggested a possible test of $74.94 per barrel—a level that had previously acted as resistance. However, optimism faded as demand concerns took center stage later in the week.

Rising U.S. Inventories and Hawkish Fed Weigh on Oil Prices

Bearish sentiment intensified midweek as U.S. crude inventories surged. The American Petroleum Institute (API) reported a massive 9.4-million-barrel stockpile build, raising fears of oversupply. While gasoline and distillate inventories declined, the crude build signaled weakening refinery demand. Traders awaited official data from the Energy Information Administration (EIA) for confirmation, but the initial numbers dampened price support.

Adding to the pressure, Federal Reserve Chair Jerome Powell maintained a cautious economic outlook, signaling that rate cuts were unlikely in the near term. Higher borrowing costs typically slow economic activity, reducing industrial and consumer fuel consumption. Market participants also kept a close eye on inflation data, which could influence the Fed’s policy stance moving forward.

Ukraine Peace Talks Spark Fears of Increased Supply

A potential peace deal between Russia and Ukraine emerged as another headwind for crude markets. Reports suggested that both Russian President Vladimir Putin and Ukrainian President Volodymyr Zelenskiy expressed interest in negotiations, with former U.S. President Donald Trump playing a role in initiating talks. If a resolution is reached, sanctions on Russian crude could be lifted, adding barrels back to the global market.

The prospect of easing restrictions pressured Brent and WTI prices lower, with traders speculating that a diplomatic breakthrough could flood the market with additional supply. Meanwhile, the International Energy Agency (IEA) indicated that Russia might sustain its export levels through alternative trade routes, further weighing on sentiment.

Demand Recovery Offers Limited Support

Despite bearish developments, some factors provided near-term support. Oil demand showed signs of resilience, with JPMorgan analysts reporting that global consumption climbed to 103.4 million barrels per day, up by 1.4 million barrels from the prior year. A stronger-than-expected pickup in mobility and heating fuel demand in February also helped counterbalance supply concerns.

Additionally, easing trade war fears provided a modest lift to risk sentiment. The Biden administration delayed implementing new reciprocal tariffs, calming fears of a global trade slowdown. However, uncertainty remains as further tariff recommendations are expected by April 1, potentially impacting crude demand.

Market Outlook: Bearish Bias Unless Demand Strengthens

Oil prices remain under pressure as rising U.S. crude inventories, a hawkish Fed, and potential geopolitical resolutions increase supply-side risks. While demand recovery offers some support, traders will be watching key technical levels closely. These key levels at $70.80 and $69.55 from a support zone. Trader reaction to this zone will set the tone for the week.

Look for a slightly bullish bias to develop on a sustained move over $70.80. Meanwhile, a sustained break under $69.55 puts the market in an even weaker position with $64.78 on the radar.

Unless fresh bullish catalysts emerge—such as stronger-than-expected economic data or new supply disruptions—the market is likely to remain defensive. Traders should monitor developments in Ukraine, Fed policy signals, and refinery demand trends for further direction.

More Information in our Economic Calendar.