Oil rises above $85/bbl amid geopolitical risks

• Brent trades above key $85/bbl level 
   
• Key growth catalyst - geopolitical instability in the Middle East
   
• Higher US inventories cap upside potential
   
• Investors look ahead to today's US PCE reading
   
• Higher than expected PCE could hurt oil demand

Brent is up ~0.72% on Friday amid the escalation on the geopolitical stage.
 

Fears of a widening conflict in the Middle East are pushing oil prices higher as it could potentially involve major oil producing countries in the region.

The risk that the U.S. Gulf Coast, where a number of the country's major energy infrastructure is located, will be hit by harsh weather conditions in the coming days is also pushing oil prices higher.

However, higher-than-expected U.S. inventories of both crude oil and gasoline may be limiting the upside at the moment.

Recent data has shown a significant deviation in inventories, pointing to weaker demand.

• API Crude Oil Stock Change: 0.914M actual vs. -3M estimated
   
• EIA Crude Oil Inventory Change: 3.591M actual vs -3M estimated
   
• EIA Gasoline Stocks Change: 2.654M actual vs -1.1M estimated
   

Today, the markets will be paying the most attention to the Core PCE reading - the Fed's preferred way of measuring inflation.

A higher-than-expected reading could contribute to the Fed's decision to delay the much-anticipated rate cuts.
 

Tighter monetary policy could hamper economic growth and thus the demand for oil.

Currently, the markets are pricing in a 70.3% chance of a rate cut in September 2024. (Source: CME FedWatch Tool). 

From a technical perspective

BRN is trading above its major simple moving averages (21-, 50- and 100-period SMAs), underscoring a strong bullish trend in both the short and long term.

On the downside, the 100-period SMA (~84.130/bbl) will provide immediate support for the black gold, preceded by the $85/bbl resistance-turned-support level.

The Relative Strength Index is ticking higher towards the upper boundary but remains well within the neutral zone (<30 - oversold; >70 - overbought).