Oil delivers knee jerk reaction after Russia announces cuts through December
|- Oil (WTI) prints new yearly high near $87.
- US Dollar roars against most major G20 peers after the US holiday on Monday.
- The American Petroleum Institute is due to print its weekly Crude Oil numbers.
Oil surprises friends and foes with a knee jerk reaction as Russia and Saudi Arabia both commit to cut production up to December, which is longer than markets had perceived initially. The started though with some profit taking for Crude Oil after a report from Goldman Sachs showed that the current cuts would create a supply deficit and meant that possibly the already announced cuts had to be unwinded or eased. Russia and Saudi Arabia are now doing the opposite by extending their announced cuts to at leats the end of this year.
Meanwhile, the US Dollar is heading higher after a very lacklustre Monday where US markets were closed for Labor Day. The Greenback is soaring on the back of weak Chinese data and several Purchase Manager Index (PMI) numbers out of Europe that are pointing to a full blown contraction in the bloc. This provides tailwinds for the US Dollar Index.
At the time of writing, Crude Oil (WTI) price trades at $86.83 per barrel and Brent Oil at $90.20
Oil news and market movers
- Both Russia And Saudi Arabia announced against all odds to extend their product cuts to at leats the end of the year.
- Iran's booming oil exports are poised to slow for the rest of year towards the OPEC+ meeting, slows down its Uranium production alongside.
- Kuwait is the main supplier for Vietnam after Year-to-date numbers reveal that 81% of the imported oil in Vietnam, came from Kuwait.
- Spain boosts import for Crude to a 15 month high.
- The weekly Bloomberg Oil Price Indicator report reveals that inventory surplus is starting to narrow.
- India starts to pay more conventional market prices for oil as the supply out of Russia is diminishing quickly with discounts nearly gone.
- Analysts at Goldman Sachs calculated that after all the announced cuts, OPEC+ would have a 2.3 million barrels per day deficit under current demand. Some announcements might be eased lower or even be recalled.
- The fact that the European economy is further falling into contraction alongside already weak growth in China could mean less demand for Crude.
- All eyes on the American Petroleum Institute at 20:30 GMT on Tuesday for its weekly print. 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 this Tuesday with China taking a turn for the worse as its Hang Seng Index drops over 2%.
Oil Technical Analysis: Cat out of the bag
Oil price slides was trading lower earlier this Tuesday near 1% after a report from Goldman Sachs revealed that the announced oil production cuts might be a bit exaggerated. With the projections from Goldman Sachs pointing to a chunky daily deficit if all cuts are being applied, the oil price could started to overheat too quickly. Russia and Saudi Arabia scrambled to issue a statement where they are extending and expanding their supply cuts, triggering a bullish move in the oil prices.
On the upside, $84.28, the high of August 10, has been broken and now should hold as support. Should WTI continue to rally on the back of lower supply and more demand, not many elements could be standing in the way of reaching that blue 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 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 yellow box level, expect to see more downside toward $74 before finding ample support to slow down the sell-off.
WTI US OIL 60min chart
WTI Oil FAQs
What is WTI Oil?
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.
What factors drive the price of WTI Oil?
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.
How does inventory data impact the price of WTI Oil
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.
How does OPEC influence the price of WTI Oil?
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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