Crude Oil tests pivotal support on plunge after Saudi Arabia gives up $100 target
|- Crude Oil is nosediving, already down over 3.00% on Thursday.
- Additional China stimulus outpaced by Saudi Arabia rumors and a ceasefire proposal on Lebanon.
- The US Dollar Index holds steady ahead of a very volatile data calendar, with the Fed’s Powell speech in focus.
Crude Oil nosedives for a second day and sees losses accelerate on Thursday in what seems to be a sharp correction. Nearly all gains booked on the China stimulus plan rollout and built-up tension in Lebanon are being offset by a ceasefire deal put on the table by the United States (US) and France during an emergency meeting at the United Nations (UN). An additional driver pushing Crude prices even lower on Thursday is the rumors that Saudi Arabia is set to give up its price target of $100 per barrel in light of the upcoming production normalization, the Financial Times reports.
The US Dollar Index (DXY), which tracks the performance of the Greenback against six other currencies, trades steady, just ahead of an expected very volatile trading day. On the economic data front, the third reading of the US Gross Domestic Product (GDP) for the second quarter and Durable Goods Orders data for August are due to be released. Add in there eight Federal Reserve (Fed) members that will take the stage, and volatility is bound to take place in the DXY later in the day.
At the time of writing, Crude Oil (WTI) trades at $67.32 and Brent Crude at $70.80
Oil news and market movers: Oil bulls under pressure
- Saudi Arabia is preparing to abandon its unofficial price target of $100 a barrel for Crude as it prepares to increase output, the Financial Times reported on Thursday, citing people familiar with the matter.
- Signs that Libyan oil will return to the market are also weighing on prices after delegates from divided Libya's east and west agreed on the process of appointing a central bank governor. This is a step closer to resolving the crisis over control of the country's oil revenue, Reuters reports.
- The US, France, and several allies called for an immediate 21-day ceasefire across the Israel-Lebanon border while also expressing support for a ceasefire in Gaza following intense discussions at the United Nations, Bloomberg reports.
- Foreign Minister Israel Katz said there will be no ceasefire in the North, as Israel will continue to fight Hezbollah, Bloomberg reports.
Oil Technical Analysis: OPEC goes ahead
Crude Oil traders have not been able to enjoy their profits for a long time. Several counterarguments, such as the ceasefire deal that has been put on the table and now Saudi Arabia letting loose of its price target in Oil, are enough to completely unwind incurred gains that were reached on the back of the elevated tensions in the Middle East. Going forward, a further escalation in the MIddle East with a ground offensive might be enough to quickly push Crude back up to above $70.00.
At current levels, $71.46 is back in focus as a first price cap on the upside after a brief false break. If positive momentum continues, a return to $75.27 (the January 12 high) could play out. Along the way towards that level, the 55-day Simple Moving Average (SMA) at $73.83 could ease the rally a bit. Once above $75.27, the first resistance to follow is $76.24, with the 100-day SMA in play.
On the downside, $67.11, a triple bottom in the summer of 2023, should support any downturns. Further down, the next level in line is $64.38, the low from March and May 2023.
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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