Oil rose to the highest since April as signs of economic strength in the US improved the outlook for demand, outweighing concerns about a price correction based on technical factors.

West Texas Intermediate settled above $80 a barrel as US economic growth exceeded expectations and speculation mounted that the Federal Reserve is nearing the end of its monetary tightening cycle. But crude is trading in overbought territory on its relative strength index for a third day, raising the threat of a pullback. 

“Crude extending the bullish rally, led by ‘risk back on’ sentiment in the equity markets, is keeping the buyers present in the crude space,” said Dennis Kissler, senior vice president for trading at BOK Financial Securities. Yet “the market has gone up too far, too fast with speculative buying, and that is creating the overbought condition, so we should see some erratic corrections soon.”

Eoin Treacy's view

Crude oil markets remain tightly balanced. Stronger GDP coupled with weaker PCE inflation data helped to boost the perception of demand dominance today. The downside is the higher oil prices go, the greater the likelihood inflation will be slow to moderate. It’s a good news/bad news story.

Brent crude is in the process of breaking its medium-term downtrend. That suggests a low of medium-term significance has been reached and opens up potential for additional upside.

The majority of energy shares dropped today as the profit outlook dimmed following the boom of the pandemic years. The recovery in oil prices could easily lead to some reassessment of profit potential so the sector is worth monitoring for signs of returning investor interest.