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Oil recovers after sliding lower, with EIA draw down saving the day

  • Oil nearly erases all intraday losses after EIA release.
  • WTI Oil hangs around $78 after a dive to $76.76 earlier.
  • The US Dollar Index ticks up with help from the Japanese Yen and market uncertainty. 

Oil prices are heading back to $78 after a steep decline earlier with West Texas Intermediate (WTI) US crude prices nearly reaching their lowest levels in almost two months. Markets did not respond well to the headline that Iran plans to add between 300,000 and 400,000 barrels per day in its production for this year, reported by Bloomberg on Wednesday. The confirmation came from Iranian Oil Minister Javad Owji on state TV, and means mayhem for the next OPEC meeting, where prolonging production cuts is the topic of discussion.

Meanwhile, the US Dollar Index (DXY) is grinding higher this week, posting gains for a third consecutive day, in joint cooperation with the USD/JPY pair, where the Japanese Yen (JPY) has already devalued half the move it gained on the Japanese interventions over the past two weeks.  The underlying bullish tone around the US Dollar (USD) might continue to weigh on Crude Oil prices

Crude Oil (WTI) trades at $77.83 and Brent Crude at $82.09 at the time of writing.

Oil news and market movers: EIA numbers faec retreat

  • At 14:30 GMT, the Energy Information Administration (EIA) has released this week’s Crude Stockpile numbers. Previous was a build of 7.265 million barrels and revealed a draw down by 1.326 million barrels. 
  • The American Petroleum Institute (API) reported on Tuesday that US Crude Inventories built by 509,000 barrels the week ending on May 3. The derivatives such as Cushing, Gasoline, and Distillates all saw buildings in their segments as well, Bloomberg reports.
  • The Energy Information Administration (EIA) issued a note on Wednesday saying that it sees the Oil market remaining balanced for 2024, pointing to non-OPEC countries filling in the gap of OPEC’s production cuts, Reuters reports. 
  • Bloomberg Intelligence reporters Will Hares and Salih Yilmaz said in a note on Wednesday that OPEC+ (Organization of the Petroleum Exporting Countries and allies) has reason enough to prolong its production cuts, seeing the recent decline in Oil prices from $87.12 on April 5 to $77.01 on Wednesday. 

Oil Technical Analysis: Small draw down does not mean substantial turnaround

Oil prices are cooling down further as the risk of interruptions in Oil production from the Middle East isn’t taking place. As traders look to be fed up with pricing in a risk premium for something that is still not happening, this sees some capitulation in the Oil price where only $75.28 looks to be only solid support level left refraining from Oil to dip to $70.00.

Still, a turnaround could occur once Oil prices recover back above $78.07, with the 100-day Simple Moving Average (SMA) and the green ascending trend line from December acting as support. Next on the upside, the 200-day SMA at $79.76 and the 55-day SMA at $81.12 are the levels to watch for some profit-taking. In the longer term, $87.12 remains the big level on the upside. 

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, expect to see an accelerated selloff towards $72.00 and $70.00. That would mean that all gains for 2024 are given up and Oil 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.