Oil recovers in difficult market conditions

• Oil (WTI) trades near $86 and looks likely to break back above $88.
• The US Dollar closed out last week with another weekly gain, though the highs point to a retreat from the bulls. 
• Oil could recover though the threat of recent supply cuts being lifted is a threat to further upside. 

Oil prices soared last week after the US imposed further sanctions on tankers carrying Oil from Russia. Meanwhile, several banks and analysts were quick to warn that any further spikes and overheating of the price could easily cool down by simply easing or lifting the recent supply cuts from Saudi Arabia and Russia. WIth production capacity surplus unused, expect that element now to work as a bearish signal for Oil prices, whereas only a few weeks ago it was acting as a catalyst for higher prices.    

Meanwhile, the US Dollar (USD) recovering last week might leave traders and investors badly positioned to start this week. Headline inflation might have ticked up a touch, pressuring the market with rates soaring back to 52-week highs as a result. Although the US Dollar Index (DXY) eked out a weekly gain on Thursday and Friday, it was yet again a close call as the Greenback trade seems uncertain to continue on Monday.

Crude Oil (WTI) trades at $86.02 per barrel, and Brent Oil trades at $89.42 per barrel at the time of writing. 

Oil news and market movers

• The risk in the oil market over the Gaza crisis remains extremely fragile. With US President Joe Biden’s possible visit to Israel, tensions could reemerge, and a spillover proxy war is still a possibility that could unfold. 
• The recent build in the US Crude Stockpile is far from enough to avoid a multiyear low and might risk the supply chain across the US. 
• The amount of Crude oil around the world being loaded in tankers that are stationary for at least seven days has fallen to 74.71 million barrels as of October 13. This is the lowest number since December. 
• Several analyst reports have said there is currently a supply surplus going unused. If it were to come on line, this could squash any uptick in Crude prices quite quickly and keep it below $100 for an ample amount of time. 

Oil Technical Analysis: Gaza remains the key

Oil prices shot higher last week as the risk premium over the Israel-Gaza escalation expanded as Israel positioned itself to start its ground invasion in the region. Meanwhile, markets are struggling to send oil prices higher as Saudi Arabia could easily cap Oil prices with a surge in supply. The Oil market rests for now on a thin equilibrium that could witness knee- jerk reactions based on headlines to come

On the upside, the support level near $88 is the first level on the bulls’ radar. From there, the next level will be this year’s high at $94. Should a substantial squeeze unfold with higher prices, 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)