Oil off the lows as OPEC report sticks to shortfall in coming quarters

WTI Oil is off the lows for this Wednesday and heads back to $70.
Oil outlook is even more bearish for 2024 and longer term after the COP28 agreement.
The US Dollar (Index) is steady around 104 ahead of the Fed rate decision.

Oil prices are trying to avoid another meltdown as WTI crude tries to head back to $70 as OPEC issued its report where it sticks to a shortfall in the coming quarters. Meanwhile, bears gained a boost on Tuesday after US Consumer Price Index numbers revealed yet again very sticky inflation. This will urge the US to keep pumping at full capacity to keep energy prices low. If the nearterm was not looking grim enough for Oil, COP28 has been able to overrule Saudi Arabia’s earlier objection, after over 200 countries agreed to fully phase out dependence on Oil.

Meanwhile, the US Dollar (USD) is trading sideways around the 104 level in the US Dollar Index (DXY). Traders will brace for an eventful Wednesday ahead with the Producer Price Index numbers and the last Fed meeting of this year. Traders will be on the lookout for the projections of Fed members (DOT PLOT) and the message from US Federal Reserve Chairman Jerome Powell delivered during the press conference.

Crude Oil (WTI) trades at $69.30 per barrel and Brent Oil trades at $73.88 per barrel at the time of writing.

Oil news and market movers: OPEC against market consensus

Just ahead of the end of COP28, participants have been able to issue an agreement that commits to fully phase out of fossil fuels.
At the same time critics have pointed out that the COP agreement contains a lot of loopholes and unclear elements on how or when the phasing out needs to be reached.
OPEC+ is not letting lose at its outlook that a significant shortfall will occur in the next coming quarters. This goes against current market conviction.
The American Petroleum Institute (API) released its weekly stockpile change on Tuesday. A drawdown of 2.349 million barrels was registered compared to the build of 594,000 barrels in the previous week.
Near 14:30 GMT the Energy Information Administration (EIA) will release its findings on the stockpile changes. Previous was a drawdown of 4.632 million, with a light drawdown of 650,000 expected.

Oil Technical Analysis: OPEC needs to do more

Oil prices and traders are playing with all the variations of the word grim - grimmer - grimmest, when it comes to outlooks and views for 2024 and longer term. With the COP28 commitment now in place to phase out fossil fuels completely, the demand picture looks only to be getting bleaker in the years to come. Expect of course to see repricings along the way with geopolitical tensions still present as the biggest counterweight against bearish pressures, though for now a further correction looks inevitable.

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.

With Oil now breaching $70.00, $67.00 comes into play now, which aligns with a triple bottom from June, as the next support level to trade at. Should that triple bottom break, a new low for 2023 could be close with $64.35 – the low of May and March – as last line of defence. Although still quite far off, $57.45 is worth a mention as the next level to keep an eye on in the downturn.

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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