- Oil (WTI) could see a boost in its price with hurricane Adalia and OPEC+ production cuts.
- US Dollar strength tops out and could start to abate as risk-on sentiment slows demand for the Greenback.
- This evening the American Petroleum Institute is due to print its weekly numbers.
Oil prices are heading higher in an overall bid for energy commodities since last week. Next to Crude Oil prices rising, Natural Gas prices were on a tear as well on Monday. With hurricane Adalia set to hit Florida and Georgia soon, oil distribution for the US southeast could get disrupted and have repercussions for the more northern states.
As if that is not enough, the current slowdown in China’s recovery is giving OPEC enough reason to cut even more production into its next meeting on November 26. Some bullish forces are starting to build. Should this Tuesday’s numbers from the American Petroleum Institute print a bigger than expected drawdown, a perfect cocktail is present to see the Oil price for WTI rallying up to $84.
At the time of writing, Crude Oil (WTI) price trades at $80.10 per barrel and Brent Oil at $84.03
Oil news and market movers
- All eyes are on the American Petroleum Institute (API) numbers this week, due at 20:30 GMT. Last week there was a draw of -2.418M.
- This week Friday’s monthly US jobs report takes precedence over other indicators. After the US Federal Reserve repeated it stance at Jackson Hole for keeping rates higher for longer, any sudden slowdowns in the US jobs market could force the hand of the Fed to start easing market conditions by cutting rates, which would mean a weaker Greenback as a side effect.
- Hurricane Adalia is making its way to Florida and is about to hit the peninsula by 8 AM this Tuesday. The production and supply for the Eastern part of the United States could come under pressure and might see Oil prices shooting higher as less supply will be available in a brief period.
- The sluggish Chinese economy is helping OPEC+ to start thinking about more production cuts in order to keep Oil prices afloat at current levels. The next meeting is still quite far away though on November 26. Meanwhile, rumours and speculation will start to build up toward that date.
- Some cargoes of Russian crude for October were offered at a lesser discount to the ICE Brent price between Russia and China.
- Saudi Arabia is considering extending its production cut for longer, which could limit the supply side in oil in the coming days.
- Equity markets are rallying for a second straight day this week and are helping demand for commodities overall.
Oil Technical Analysis: one line to watch
The Oil price is ticking up nicely since it started its rally last week. The turnaround came with a knee-jerk reaction where the weekly API numbers were only showing a minor drawdown that pushed oil prices further lower. Yet, on August 23rd, the Department of Energy (DOE) printed a massive drawdown of over 6M barrels.
On the upside, $81.68, Monday’s high, is the one to beat in order to trigger a small uptrend. Should WTI continue to rally and break that red descending trendline, more new highs will come into play. In order to print a fresh monthly high, the peak of mid-August at $84.32 is the target when demand takes over and supply cannot follow suit.
On the downside, a temporary bottom is being formed around $77.50 and acts as a base for this week. Should the Baker Hughes Rig Count jump substantially higher, expect to see the floor tested as more supply is bound to come online. Once bears make it through that orange box level, expect to see more downside toward $74 before finding ample support to slow down the sell-off.
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WTI US OIL (Daily Chart)
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 13 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
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