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Oil falls 1% as US production overcomes recent OPEC+ production cuts

  • WTI oil is trading near $72 and is poised to fall as US supply hits the export market.
  • Oil looks set to plunge further as OPEC+ countries are reluctant to extend current production cuts.
  • The Dollar is set for a third consecutive day of gains when measured by the Dollar Index.

Oil is trading lower as markets are pricing in the barrels the US is releasing into the market. The latest data shows that the US is approaching 6 million barrels per day for export, according to the latest ship tracking data. The surplus is overshadowing the slight supply cut that OPEC+ has committed to maintaining and therefore continues to create an imbalance with more supply than demand.

Meanwhile, the US dollar (USD) remains firm for the third day in a row. The Dollar Index (DXY) is approaching 104.00 and could rise during the week. Although yields in the United States are falling, they are doing so at a slower rate than the rest of the currencies, which favors the Dollar against most currencies.

Crude oil (WTI) is trading at $71.72 per barrel and Brent at $76.42 per barrel at the time of writing.

Oil news and market movements: US exceeds expectations

  • U.S. crude oil exports could reach about 5.7 million barrels a day, according to ship tracking companies Kpler and Vortexa. Data from the Energy Information Administration (EIA) on Wednesday could confirm these forecasts.
  • Saudi Arabia has cut crude oil prices destined for the Asian market, according to a Bloomberg survey.
  • Overnight, weekly figures from the American Petroleum Institute (API) revealed a build of 0.594 million barrels versus the previous week’s draw of 0.817 million barrels.
  • On Wednesday, the Energy Information Administration (EIA) will publish the weekly change in US crude oil reserves. A reduction of 2,267 million barrels is estimated, compared to 1,609 million the previous week.

Technical Analysis of oil: More falls

Oil prices are sinking, breaking below the November low. While OPEC+ faces a supply surplus, this surplus is increasing as the US becomes a large oil producer. By pouring 6 million barrels a day into the world market, the excess supply could last for months before OPEC+ can finally modify its policy in order to adjust production to liquidate the surplus. In this context, oil prices will continue to decline until a decision by OPEC or another catalyst eliminates the surplus.

To the upside, $80.00 is the resistance to watch out for. If crude oil breaks above it again, the next level where we will see some selling pressure or profit taking will be $84.00 (purple line). If oil 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 breaking down with a new low for November. This level is acting as the last line of defense before entering $70.00 and below. Pay attention to $67.00, which coincides with the June triple low, as the next support level for trading.

US WTI Crude Oil: Daily Chart

WTI Crude Oil: Daily Chart

WTI Oil FAQ

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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