FX

Oil off this Monday’s low as markets brace for OPEC+

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  • WTI Oil saround $75 ahead of US opening bell.
  • The US Dollar is trading flat as US trading session underpins the Greenback.
  • Oil could sink below $70 if OPEC+ can not unify and come out with a set of supportive measures.

Oil prices are reversing a touch on Monday near the US opening bell, after losing near 1.5% during European trading.  Markets are selling Crude futures based on the current split within OPEC+ about what to do next, and the base case scenario that no severe measures will be taken to support Oil prices. With the recent disappointing data out of China revealing that a recovery is not going to happen in 2023, demand is not there either, disqualifying another factor that could provide ample demand. 

The US Dollar (USD) is flat and sideways this Monday as US traders return to their trading stations. Their brief hiatus because of Thanksgiving and Black Friday caused some weakness in the Greenback. They will now, no doubt be bracing for a chunky macroeconomic calendar with pivotal points at the end of the week, and comments from US Federal Reserve Chairman Jerome Powell on Friday evening, rounding out the week.  

Crude Oil (WTI) trades at $75.40 per barrel and Brent Oil trades at $80.30 per barrel at the time of writing. 

Oil news and market movers: Some turnaround

  • The postponement of the OPEC+ meeting to a virtual one on Thursday is proof of severe division within the organisation. This is not good news for Oil prices which need a united front  to keep at present levels.
  • Together with the Thursday meeting of OPEC+, in Dubai the COP28 meeting will kick off. 
  • Several market participants have issued their forecast for OPEC+ decisions. The consensus is that even if OPEC+ extends current production cuts, it is unlikely to result in a rally. The group needs to issue a big and bold strategy in order to regain credibility. 
  • Overnight the China Industrial profit numbers revealed a year-to-date loss of 7.8% against last year. This points to a continued delay in the recovery of China’s industrial complex, undermining a pickup in demand for Oil from the Asian powerhouse. 

Oil Technical Analysis: Pivotal week ahead

Oil prices are set to drop further as no countermeasures are in place to contradict any of the bearish elements that are being factored in. Ahead of Thursday, single comments from OPEC participants will not be enough to create a floor and halt the decline. At this pace, Oil prices could head to $67.00 by Thursday if more bearish elements are added. 

On the upside, $80.00 is the resistance to watch out for. Should crude be able to jump above that again, look for $84.00 (purple line) as the next level to see some selling pressure or profit taking. Should Oil prices be able to consolidate above there, the topside for this fall near $93.00 could come back into play.

On the downside, traders are seeing a soft floor forming near $74.00. This level is acting as the last line of defence before entering $70.00 and lower. Watch out for $67.00 with that triple bottom from June as next support level to trade at. 

US WTI Crude Oil: Daily Chart

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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