- Oil (WTI) takes a step back after hitting $87.50 on Tuesday.
- The US Dollar eases a touch after a roaring performance on Tuesday.
- The American Petroleum Institute will release its weekly Crude Oil numbers on Wednesday.
Oil price is a trending topic this week after the surprise extended and increased production cuts announced by Russia and Saudi Arabia. Journalists will be keen to see the first eye contact, if there will be any, between US president Joe Biden and Crown Prince Mohammad bin Salman al-Saoed at the G20 meeting this weekend in India. Several analysts are seeing an attempt from Russia to crash the US economy and make it impossible for the US Federal Reserve to accomplish that soft landing as inflation might pick up again with gasoline and energy prices on the uprising again.
Meanwhile, the US Dollar was the king on Tuesday as stock markets traded in the red across the globe. The US Dollar Index (DXY) was in the green against every major G20 peer. On Wednesday, the US Dollar takes a step back as European Central Bank member Klaas Knot said that a surprise hike might still come in September, making markets pare back bets of no hikes to a 50-50 valuation in favour of a stronger Euro and weaker US Dollar.
At the time of writing, Crude Oil (WTI) price trades at $85.99per barrel and Brent Oil at $89.44
Oil news and market movers
- From a cyclical point of view, oil prices in the first half of 2023 have been on a declining path. After recent announcements and the run up to them, is resulting in an uptrend for the second half of 2023.
- US oil production could be seen surpassing Saudi and Russian production by next year if OPEC+ cuts persist.
- OPEC+ heavyweights have pencilled in their commitments. The dust starts to settle as markets have digested the announcements, although questions remain around Saudi Arabia’s commitments. The country has been known for backtracking and even performing knee jerk reactions on previous statements.
- Brent Oil is being labelled with a price target of $100 per barrel, with several banks and analysts revising their projections higher.
- Markets have not heard yet of US president Joe Biden as these elevated oil levels will trickle into higher gasoline prices at the pumps. A bad omen for the current ruling president in his quest to get inflation down and control gasoline prices for households. Chances of a substantial coordinated release of oil reserves might be again the playbook.
- As production-related headlines start to die down, the focus is likely to shift to the inventory side.
- The American Petroleum Institute will publish at 20:30 GMT its weekly Crude Oil stock numbers. Previous reading was a drawdown of 11.486 million barrels. Any buildup in the stockpile could further weaken oil prices.
- Equity markets are in the red on Wednesday, with biggest losses in the United Kingdom, where the FTSE 100 is down near 1%.
Oil Technical Analysis: foul play
Oil prices are hitting a wall on the upside after its price action was boiling over as the Relative Strength Index (RSI) heads into overbought territory. This means that less buying will start to take place as traders will see less upside potential when entering into a long Crude Oil position at these elevated levels. Look for the RSI to cool down a touch before the next upswing materialises.
On the upside, $84.28, the high of August 10, has been broken and should hold as support. IfWTI continues to rally on the back of lower supply and more demand, not many elements could be standing in the way of reaching that green line at $92.80. Of course, the $90 psychological level needs to be faced first.
On the downside, a temporary bottom is being formed around $77.50, which acted as a base for this week. Should the API stockpile count jump substantially higher, expect to see the floor tested as more supply is bound to come on the markets. Once bears make it through the yellow box level plotted in the chart, 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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