Oil off the yearly high as supply deficit looms

• Oil (WTI) prints new yearly high at $85.70.
• US Dollar firmly stronger after the US holiday on Monday. 
• The American Petroleum Institute is due to print its weekly Crude Oil numbers. 

Oil is on a tear with prices soaring substantially, although the tide could be turning. After wild rumors and large numbers pencilled in for expected supply cuts from OPEC+ members, it looks like no more announcements will be made as a large deficit is projected by Goldman Sachs. This could mean that the Crude Oil price is about to see some profit-taking, but traders await further confirmation of more OPEC+ members and their possible firm commitments toward supply cuts. 

Meanwhile, the US Dollar is heading higher after a very lacklustre Monday where US markets were closed for Labor Day. The Greenback is soaring on the back of weak Chinese data and several Purchase Manager Index (PMI) numbers out of Europe that are pointing to a full blown contraction in the bloc. This provides tailwinds for the US Dollar Index. 

At the time of writing, Crude Oil (WTI) price trades at $84.72 per barrel and Brent Oil at $87.99.

Oil news and market movers

• India starts to pay more conventional market prices for oil as the supply out of Russia is diminishing quickly with discounts nearly gone. 
• Analysts at Goldman Sachs calculated that after all the announced cuts, OPEC+ would have a 2.3 million barrels per day deficit under current demand. Some announcements might be eased lower or even be recalled. 
• The fact that the European economy is further falling into contraction alongside already weak growth in China could mean less demand for Crude. 
• All eyes on the American Petroleum Institute at 20:30 GMT on Tuesday for its weekly print. Previous reading was a drawdown of 11.486 million barrels. Any buildup in the stockpile could further weaken oil prices. 
• Equity markets are in the red this Tuesday with China taking a turn for the worse as its Hang Seng Index drops over 2%.

Oil Technical Analysis: Test for support before next jump

Oil price takes a small step back on Tuesday after its five-day-winning streak and is under pressure from some profit-taking. With the projections from Goldman Sachs pointing to a chunky daily deficit if all cuts are being applied, the oil price could start to overheat too quickly. Should some OPEC+ participants begin to loosen their firm talk on cuts, expect to see a further unwinding of the recent peak in oil prices. 

On the upside, $84.28, the high of August 10, has been broken and now should hold as support. Should WTI continue to rally on the back of lower supply and more demand, not many elements could be standing in the way of reaching that blue line at $92.80. Of course, the $90 psychological level needs to be faced first. 

On the downside, a temporary bottom is being formed around $77.50, which  acted as a base for this week. Should the Baker Hughes Rig Count jump substantially higher, expect to see the floor tested as more supply is bound to come online. Once bears make it through that yellow box level, expect to see more downside toward $74 before finding ample support to slow down the sell-off. 

WTI US OIL daily chart