Oil retreats below $84, with risks of further downturns
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- Oil (WTI) slides lower for a fifth consecutive day.
- The US Dollar sees volatility soar with two 1% intraday moves in a row in the US Dollar Index, back flat for the week.
- Oil faces risk of falling to $80 as markets struggle to identify floor.
Oil prices are sliding lower, summing up to an already 8% decline from its peak on October 20, as diplomacy is ruling in the escalated tensions between Israel and Palestine. Several heads of states are gathering in order to get more done on the humanitarian front in Gaza. With the pushback on the Israeli ground offensive in the region, the risk of a broad proxy war in the Middle East is decreasing by the day, which means further selling pressure in Oil prices.
Meanwhile, The US Dollar (USD) made a staggering return on Tuesday and tries to consolidate these gains this Wednesday. The US Dollar Index was close to post a new high for this trading week, though it was unable to pull it off after the US closing bell. Expect the US Dollar to trade a rather tight range for this Wednesday, ahead of the European Central Bank meeting and US Gross Domestic Product numbers on Thursday.
Crude Oil (WTI) trades at $83.51 per barrel, and Brent Oil trades at $87.36 per barrel at the time of writing.
Oil news and market movers
- Divergence between US and Canadian Oil prices as Canadian oil prices are weakening despite pipeline bottlenecks occurring in Canada, restricting shipments to refiners. Canadian pipelines were forced to ration their space this year amid rising Oil production.
- The American Petroleum Institute (API) released its weekly figures overnight on Tuesday. Previous number was a drawdown of 4.383 million, and the actual number at 2.668 million drawdown in barrels.
- At 14:30 GMT, the weekly Energy Information Agency (EIA) will release its stock figures. The previous number was a drawdown for 4.383 million barrels. Expectations for this week are between a drawdown of 3 million and a build of 2 million. Any bigger build than 2 million barrels will trigger another leg lower in Crude prices.
- Russia struggles to lift Oil exports, as its Oil-product exports plunged to the lowest in more than three years. Diesel exports slumped to 769,000 barrels a day this month.
Oil Technical Analysis: Looking for a support pivot
Oil prices are retreating further from their peaks as the Israeli ground offensive is being pushed back. Though, there were other signs that could count as a foretelling sign that Crude prices were due to retreat. Each time several banks are starting to jack up their forecast calls towards $150 per barrel, often the opposite happens, as speculators are getting too greedy with big sellers more than happy to get paid at elevated levels while global demand is fading and an oversupply is at hand.
On the upside, $84.25 is the new resistance. Should Crude be able to print a similar performance as the US Dollar Index did on Tuesday, expect even a quicker sprint to $88. Should Oil prices be able to consolidate above there, the topside for this fall near $93 could come back into play.
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
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.