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- Oil trades near last line of support before substantial correction
Oil trades near last line of support before substantial correction
- Oil retreats to $78.00 after a failed attempt to snap above $80.00 on Friday.
- More criticism emerges globally towards Israel and its approach to Gaza.
- The US Dollar Index steadies around 105.30 ahead of US CPI data later this week.
Oil prices edge up slightly on Monday, but levels are flashing red lights after closing nearly flat last week. The black gold has been unable to rally on the back of further rising tensions on the situation in the Middle East after the US suspended the delivery of certain weapons to Israel amid concerns over the offensive in Rafah. Meanwhile, speculation is mounting over OPEC+ not unwinding its voluntary production cuts at the upcoming meeting in June.
Meanwhile, the US Dollar Index (DXY) is in the middle of a two-week range around 105.30 and looking for direction. Traders are starting to see possibilities ranging from a soft landing to a stagflation scenario. Markets will look at the US Consumer Price Index (CPI) numbers on Wednesday to see if the hotter-than-expected inflation readings recorded in the first quarter extend into April.
At the time of writing, Crude Oil (WTI) trades at $78.06 and Brent Crude at $82.70.
Oil news and market movers: Easing further
- Arab News reports that several Oil traders confirmed that part of the recent correction comes from the outlook of less demand linked to the US Federal Reserve (Fed) keeping rates steady for longer. A rate cut would give a boost to the economy and thus Oil demand.
- Goldman Sachs issued a report on Monday saying that they no longer expect OPEC+ to announce any partial unwinding of the voluntary production cuts at the June meeting.
- Bloomberg reports that Crude Oil Storages floating in tankers have fallen by 11% since last week. That would be the lowest level since February 2020 to only 55.92 million barrels as of May 10.
Oil Technical Analysis: Hanging by a thread
Oil prices are flashing some red lights while trading around a risk level. With Oil prices right at the green ascending trend line, the risk of a snap below it would mean a possible downward movement first to $75.00 and next to $68.15, which would represent a 3% and 10% decline, respectively. . That would materialise as traders get more accustomed to the risk exposure in the Middle East.
On the upside, the line in the sand remains at $79.73 with the 200-day Simple Moving Average (SMA). Once above that level, the double layer is coming up with the 100-day SMA and the red descending trend line at $78.23. In case of an upward extension above that zone, there the road is open for $87.12 again.
On the downside, the pivotal level at $75.28 is the last solid line in the sand that could end this decline. If this level is unable to hold, investors could expect an accelerated sell-off towards $72.00 and $70.00. That would erase all gains for 2024 and then Oil price could test $68, the December 13 low.
US WTI Crude Oil: Daily Chart
WTI Oil FAQs
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.
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.
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.
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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