Oil snaps support as risk premium from Israel-Hamas conflict gets priced out
|- Oil (WTI) sinks below $84 after a calm Tuesday trading session.
- The US Dollar weakened after Fed officials commented about the end of the tightening cycle.
- Sideways to lower price action is expected as several Oil-producing countries vowed for diplomacy amid current tensions in Gaza.
Oil prices slides lower as the current fall-out from the violence erupted in Israel and the Gaza strip over the weekend has no impact at the moment on any oil production or supply routes. Markets were on edge about possible spillover effects from the conflict to the broader Middle East region, but roughly 48 hours later it appears that Oil production is not at risk.
Meanwhile, the US Dollar (USD) sees markets looking beyond recent developments in Israel and Gaza. It appears that several countries and participants around this war do not want to see further escalation of violence. This means, for now, a proxy war is out of the way. Safe-haven flows are starting to retreat, with the Swiss Franc and the Greenback reverting back to weaker levels.
Crude Oil (WTI) trades at $83.56 per barrel, and Brent Oil trades at $86.17 per barrel at the time of writing.
Oil news and market movers
- Two major European oil refiners requested less crude than usual from Saudi Arabia's Aramco after the company raised its prices for deliveries to Europe.
- Russia and Saudi Arabia will discuss Oil market prices on Wednesday, Russian Deputy Prime Minister Alexander Novak said.
- Saudi Energy Minister Prince Abdulaziz bin Salman will participate in the Russian Energy Week forum. The Saudi Energy Minister will meet with Deputy Prime Minister Novak in a breakout meeting during the convention.
- The US and Venezuela are close to reaching a deal that would ease any Oil and banking sanctions in return for ensuring fair elections next year.
- With the recent cuts since the end of summer, OPEC+ countries have ample amount of spare production capacity to weather sudden supply shocks.
- The American Petroleum Institute is due to release its weekly numbers at 20:30 GMT. The previous week recorded a drawdown of 4.21 million barrels.
Oil Technical Analysis: API drawdown not expected to move the needle
Oil prices are contracting after eaerlier peaks in the initial reaction to the war in Israel and Gaza. For now, price action looks to be underpinned by a small risk premium, though the current diplomatic stance from several nations in the region has defused quite a lot of tension around a possible higher Oil price. Expect to see some sideways price action with a possible dip lower once the conflict de-escalates.
On the upside, the double top from October and November of last year at $93.12 remains the level to beat. Although it got breached on Thursday, Oil price didn’t close above it. Should $93.12 be taken out, look for $97.11, the high of August 2022.
On the downside, traders are bracing for the entry of that region near $78. The area should see ample support for buying. Any further drops below this level might see a firm nosedive move, which would cause Oil prices to sink below $70.
US Crude (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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