Oil breaks higher awaiting the EIA report, after the surprise of the night with the reduction of the API

• Oil (WTI) rebounds on demand, while supply could slow.
• US dollar strength eases after US JOLTS data points to weakening labor demand.
• The Energy Information Administration will publish its weekly figures.

Oil prices are picking up again as supply struggles with disruptions caused by Hurricane Adalia and OPEC+ cuts. Adalia has become a life-threatening hurricane passing through Florida, risking oil and gas supply problems to the north. In addition, data from the American Petroleum Institute showed a large reduction in reserves, from -2,418 million to -11,486 million.

As if that were not enough, in the commodity sector it is rumored that OPEC+ is preparing the announcement of new production cuts for its November meeting. Meanwhile, the dollar depreciates as traders begin to price in the slowdown in the US economy. There is a perfect storm brewing from a macroeconomic, reserves and geopolitical standpoint, which could send oil higher this week.

At the time of writing these lines, Crude Oil (WTI) is trading at $81.34 per barrel and Brent at $85.15.

Oil news and movements in the markets

• The American Petroleum Institute (API) published its figures for this week. The figures showed a staggering 11.486 million barrel draw in US crude inventories, well above the 2.418 million barrel draw seen a week earlier.
• If the Energy Information Agency (EIA) publishes another major reduction at 14:30, the price of crude oil could record a new weekly high. Last week there was a cut of 6.135M, and the markets expect a decrease of only 3.267M. With the already impressive API numbers from last night, the EIA number has to be a big hit in terms of drawdown to trigger another big move higher.
• The US Gross Domestic Product numbers for this Wednesday at 12:30 could trigger a bit of a pullback, should the numbers signal a slowdown in the US economy, meaning less demand for oil .
• The US monthly jobs report on Friday is key. After US Federal Reserve officials repeated in Jackson Hole that they are willing to keep rates higher for longer, any sudden slowdown in the US job market could force the Fed to begin to ease market conditions by cutting rates, which would mean a weakening of the dollar.
• Storm Adalia is making its way over Florida and has become a life-threatening hurricane. Production and supply in the eastern US could come under pressure and oil prices could soar as less supply becomes available in a short period of time. The White House has decreed a state of emergency.
• Equity markets rallied for the third day in a row this week, helping demand for commodities.

Technical analysis of oil: from one data to another

The price of oil is rebounding strongly and more demand than supply is expected in the coming weeks. This week traders will want to see if the tables are turned as this time around the API posts a staggering drop (yellow box on the chart) while the EIA could disappoint expectations and trigger a pullback and some profit taking. Meanwhile, oil will react to any contraction or disappointment in the US Gross Domestic Product figures due at 12:30 GMT.

On the upside, $81.68, Monday’s high, are the ones to break to trigger a small uptrend. If WTI continues its recovery and breaks out of the red downtrend line, new highs will ensue. To mark a new monthly high, the mid-August high of $84.32 is the target when demand takes over and supply cannot follow.

To the downside, a temporary bottom is forming around $77.50 that acts as a floor for this week. If Baker Hughes’ rig count rises significantly, expect the floor to be tested as supply will increase. Once the bears break above the yellow box level, expect further declines towards $74 before finding ample support that halts the selloff.

WTI US OIL (daily chart)