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Oil at risk of falling below $70 as OPEC+ production cuts prove insufficient

  • WTI oil is trading near $74 following last week’s OPEC+ meeting.
  • The Dollar recovers as the rate differential between the US and other countries increases.
  • Oil could fall as supply increases once the US has replenished its Strategic Reserves (SPDR).

Oil prices are stuck near $74 after the disappointing OPEC+ result. The split within the oil producer group was significant, and the result was not what markets wanted to see to send crude oil prices higher. Additionally, the United States is bolstering its oil supply and increasing its strategic reserves, meaning that once filled, markets will be even more oversupplied.

Meanwhile, the US dollar rebounds strongly for the second day in a row after China received a negative outlook from rating agency Moody’s and European Central Bank (ECB) board member Isabel Schnabel mentioned that inflation is close to the target and that the ECB is at the end of its hike cycle. This causes markets to back away from the idea that the US Federal Reserve would be the first to cut interest rates, supporting US yields and placing the US Dollar at a higher value than the Euro and other currencies.

Crude oil (WTI) is trading at $74.02 per barrel and Brent at $78.77 per barrel at the time of writing.

Oil news and market movements: OPEC+ loses the game for now

  • Saudi Energy Minister Prince Abdulaziz bin Salman said OPEC+ oil production cuts can “absolutely” be maintained until March and beyond if necessary, Bloomberg reported.
  • Following the Saudi energy minister’s comments, there were no real movements in crude oil or Brent prices.
  • Some strange moves in South Korea, where two processors have so far bought 4 million barrels of U.S. oil for delivery in March, according to two traders who asked to remain anonymous.
  • This afternoon, the American Petroleum Institute (API) will publish weekly changes in reserves. The previous week saw a small reduction of 0.817 million barrels, and there are no forecasts for this week’s figures.

Oil technical analysis: OPEC tries to catch the ball

Oil prices have remained fairly stable in the days following the official OPEC+ announcement. OPEC+ participants are beginning to realize the missed opportunity and are still trying to salvage the situation with secondary comments like those of the Saudi energy minister. These elements may be very temporary, but they are unlikely to lead to substantial increases or to establish a price floor in oil.

To the upside, $80.00 is the resistance to watch out for. Should crude oil break above this resistance again, the next level where we will see some selling pressure or profit taking will be $84.00 (purple line). If prices manage to consolidate above, the top of this decline, near $93.00, could come back into play.

To the downside, the soft floor near $74.00 is under pressure. This level is acting as the last line of defense before entering $70.00 and below. Pay attention to $67.00 with the June triple bottom as the next support level for trading.

US WTI Crude Oil: Daily Chart

WTI Crude Oil: Daily Chart


What is WTI oil?

WTI oil is a type of crude oil that is sold in international markets. WTI stands for West Texas Intermediate, one of the three main types that include Brent and Dubai crude. WTI is also known as “light” and “sweet” for 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 through the Cushing facility, considered “the pipeline junction of the world.” It is a benchmark for the oil market and the price of WTI is frequently quoted in the media.

What factors determine the price of WTI oil?

Like all assets, supply and demand are the main factors that determine the price of WTI oil. As such, global growth can be a driver of increased demand and vice versa in the case of weak global growth. Political instability, wars and sanctions can alter supply and impact prices. The decisions of OPEC, a group of large oil-producing countries, is another key price factor. The value of the US Dollar influences the price of WTI crude oil, as oil is primarily traded in US dollars, so a weaker Dollar can make oil more affordable and vice versa.

How do inventories influence the price of WTI oil?

Weekly oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) influence the price of WTI oil. Changes in inventories reflect the fluctuation of supply and demand. If the data shows a decline in inventories, it may indicate an increase in demand, which would drive up the price of oil. An increase in inventories can reflect an increase in supply, which drives down prices. The API report is published every Tuesday and the EIA report the next day. Their results are usually similar, with a difference of 1% between them 75% of the time. EIA data is considered more reliable since it is a government agency.

How does OPEC influence the price of WTI oil?

OPEC (Organization of the Petroleum Exporting Countries) is a group of 13 oil-producing nations that collectively decide member countries’ production quotas at biannual meetings. Their decisions often influence WTI oil prices. When OPEC decides to reduce quotas, it can restrict supply and drive up oil prices. When OPEC increases production, the opposite effect occurs. OPEC+ is an expanded group that includes ten other non-OPEC member countries, including Russia.

Source: Fx Street

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