Oil beaten by USD strength

• Oil (WTI) drops and begins to flirt with the first major support near $88.
• The value of the USD continues to rise as markets price in a possible persistent rate differential between USD and other currencies.
• If oil prices rise they have negative implications even for black gold producers.

The prices of Petroleum They fall for the second day in a row, with Western Texas Intermediate (WTI) breaking below the $90 level, due to the strengthening of the USD. Although rising oil prices should be a good thing for oil producing companies, the recent rally has caused a 5.3% sell-off in an index of oil producers. It appears that energy traders are reaching the tipping point where demand could begin to decline, resulting in less revenue for oil producers.

Meanwhile, the dollar once again crushes the markets. The US Dollar Index (DXY), which tracks the dollar against a basket of other major currencies, is trading above 106.00, while the EUR/USD pair breaks down to 1.05. It looks like a stronger US dollar is here to stay as it benefits from the so-called rate differential story, or the fact that the US Federal Reserve (Fed) is expected to keep interest rates at a higher level than other central banks. This sentiment has caused a flight to safety across the board, as higher interest rates for a longer period could mean a recession and therefore lower demand for Oil.

Crude oil (WTI) is trading at $88.47 per barrel and Brent at $91.16.

Oil news and market movements

• The upcoming weekly report on crude oil reserves from the Energy Information Administration (EIA) could trigger a jump in the price of crude oil if Cushing’s strategic reserves hit another new low. So far in the third quarter, bookings are down 45%.
• Recent reports show that Russia remains dependent on European oil demand. More than half of Russian crude oil exported heads to Europe despite the breach of the price cap.
• Continental Resources CEO Doug Lawler called on the US government to explore more domestic crude oil production. Otherwise, WTI crude oil could head towards $150 if the current pace of stockpile drawdowns continues through the rest of 2023, he said.
• The global decline in stock markets and concerns about the health of the American consumer could cause a decline in oil demand.
• Similar problems have occurred in China, where the real estate conglomerate Evergrande has not paid the interest on its debt.
• The strengthening of the dollar, supported by the Fed’s stance of keeping rates high for a long time, could limit global oil demand.

Oil Technical Analysis: small rebound from support

Oil prices are heading towards a small phase of correction, more than granted after the fierce recovery registered since the end of August. The Relative Strength Index (RSI) remains very elevated and any cooling is more than welcome from a technical perspective as crude oil was trading in an overbought situation. Expect pressure to be put on several lower pivotal levels, which should be able to provide ample support and prop up prices.

On the upside, last year’s October and November double top at $93.12 remains the level to beat. Although this level appears very close, markets have already priced in many potential supply shortfalls and a bullish outlook. If $93.12 is exceeded, we will have to look for $97.11, the August 2022 maximum.

To the downside, a new bottom forms near $88, with the highs of September 5 and 11 underpinning the current price action. Proof of this is the fall of September 13 and 21, which was reversed before $88. If $88 is broken, the August 10 high has to be enough to catch the drop near $84.20.

WTI US OIL Daily Chart