Oil tests low of November as supply surplus builds
|- WTI Oil trades near $74 in the aftermath of the OPEC+ meeting last week.
- The US Dollar rallies as the rate differential between the US and other countries widens.
- Oil could sink lower as supply increases once the US has restocked its Strategic Reserves (SPDR).
Oil prices are starting to look heavy as Crude prices snap the current floor around $74. Recent headlines that confirm Russian President Vladimir Putin is due to meet the Saudi Crown Prince Mohammed Bin Salman to discuss OPEC+ cooperation could point to both nations looking for a way to still share the burden with the other OPEC+ countries. In the latest meeting Russia and Saudi Arabia had to take the bulk load of production cuts for their account in order to something done, with African participants refusing to take any cuts.
Meanwhile, the US Dollar (USD) is rallying firmly for a second day in a row after China received a negative outlook from rating agency Moody’s and European Central Bank (ECB) board member Isabel Schnabel mentioned that inflation is near target and the ECB is at the end of its hiking cycle. This makes markets backtrack on the idea the US Federal Reserve would be the first to cut interest rates, supporting US yields and placing the US Dollar at higher value than the Euro and other currencies.
Crude Oil (WTI) trades at $73.70 per barrel and Brent Oil trades at $78.52 per barrel at the time of writing.
Oil news and market movers: Dipping further
- Russian seaborn oil exports drop to a 3-month-low on Black Sea storms.
- Saudi Crown Prince Mohammed Bin Salman and Russian President Vladimir Putin are to meet soon to discuss current OPEC+ cooperation, press agency IFX reported.
- Saudi Energy Minister Prince Abdulaziz bin Salman said OPEC+ Oil production cuts can “absolutely” stay in place until March and beyond if needed, Bloomberg reported.
- On the back of the comments from the Saudi Energy Minister, no real moves in Crude or Brent prices to take notice.
- Some strange moves in South Korea, where two processors bought 4 million barrels of US Oil up to now, for delivery in March, according to two traders who wanted to stay anonymous.
- This evening, the American Petroleum Institute (API) is due to release its weekly stockpile changes. The previous week recorded a small drawdown of 0.817 million barrels, with no forecast pencilled in for this week’s numbers.
Oil Technical Analysis: More downside to come
Oil prices have been actually quite steady in the days after the OPEC+ official announcement. OPEC+ participants are starting to realise the missed opportunity and are trying to still salvage the situation with side comments such as those from the Saudi Energy Minister. These elements can be good for short blips, but they are unlikely to lead to substantial rallies or to install a price floor on Oil prices.
On the upside, $80.00 is the resistance to watch out for. Should crude be able to jump above that again, look for $84.00 (purple line) as the next level to see some selling pressure or profit taking. Should Oil prices be able to consolidate above there, the topside for this fall near $93.00 could come back into play.
On the downside, the soft floor near $74.00 is under pressure. This level is acting as the last line of defence before entering $70.00 and lower. Watch out for $67.00 with that triple bottom from June as the next support level to trade at.
US WTI Crude Oil: Daily 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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