Oil rallies after OPEC report points to deeper Saudi cuts, creating biggest deficit in decade
- Oil (WTI) pops higher and flirts with a break of $90
- The US Dollar storms out the gates stronger on Tuesday after a lacklustre performance on Monday.
- The American Petroleum Institute will release its weekly Crude Oil numbers on Tuesday.
Oil prices are breaking higher and must have US president Joe Biden choking on his coffee and croissant this morning. The recent OPEC report reveals that Saudi Arabia is extending its supply cuts and that translates into a 3 million dollar barrel shortage, being the biggest deficit in over a decade. With US Western Texas Intermediate (WTI) pushing towards $90 and Brent already at $91, this means inflation worries with US gasoline prices bound to jump higher at the pump.
Meanwhile, the US Dollar is roaring back on Tuesday, erasing its losses from Monday when China tripped the Greenback by a staggering strong fixing of its Yuan. The Greenback lost substantially against the Japanese Yen and Australian Dollar as well in the fallout of that strong Yuan fixing against the US Dollar. At the time of writing, the US Dollar Index (DXY) had nearly pared back all losses from Monday and was trading almost flat for the week.
At the time of writing, Crude Oil (WTI) price trades at $88.08 per barrel and Brent Oil at $91.42
Oil news and market movers
- OPEC report shows a shortfall of 3 million barrels with Saudi Arabia extending cuts. It will be the biggest deficit in over a decade.
- The head of the International Energy Agency (IEA) said the demand for Oil, Coal and Gas is to peak this decade. This comment precedes the actual publication of a report later this Wednesday.
- With the US Inflation report due on Wednesday, the current rise in gasoline prices might amount to a surge in inflation pressure.
- US Baker/Hughes Rig Count on Friday revealed that the number of oil producing rigs was still at a yearly low. This means that the US needs to resupply current drawdowns by buying externally. This means that the demand side will see the US quite active in buying on the global oil markets.
- In the first week of September, land crude oil storage levels in US, Japan and the Amsterdam-Rotterdam-Antwerp oil trading hubs fell 2.8% to 546.1 million barrels.
- When including global floating crude stockpiles from September, total crude oil inventories decreased by 2.4% to 631m bbl. So inventories are getting crushed by drawdowns, which need to be refilled or replaced at one point in time.
- The American Petroleum Institute will publish at 20:30 GMT its weekly Crude Oil stock numbers. Previous reading was a drawdown of 5.521 million barrels.
- Equity markets are in the red on Monday with no real outliers to mention as markets are searching for direction.
Oil Technical Analysis: OPEC tightens again
Oil prices are being squeezed to the upside by the extended supply cuts out of Saudi Arabia, breaking higher towards nearly $90. Question is now what the US will do and if it can do anything about this squeeze in higher prices. Expect to see a possible quick sprint higher should the API numbers this evening point to another massive drawdown in stockpile numbers.
On the upside, $88 as a big figure is the first nearby hurdle to head to. From there, it will be a tiered rally toward first $90 and finally $93.12, the double top from October-November last year. That means a 5% uptick move is possible in the nearby future.
On the downside, a pivotal level is being identified at $84.30, the high of August 10. In case that level does not hold, a substantial nosedive might occur. That means that oil prices might drop all the way to that important floor near $78 identified.
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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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