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Oil falls 5% weekly despite rumors about extending Saudi supply cuts until 2024

  • WTI oil trading will close the week with significant losses.
  • The Dollar weakens as markets price in that the Fed has ended interest rate hikes.
  • Oil could see some brief rallies due to OPEC rumors, but a further decline cannot be ruled out.

Oil prices are falling, which is a thorn in the eye for OPEC+. Saudi Arabia suggested it could extend its supply cuts well into 2024, although markets ignored this possibility and still sent crude oil prices down 5% over the week. Looking at the reshuffling of supply and demand, it appears that the United States has steadily increased its oil production, contributing to a supply surplus for the current lower demand.

Meanwhile, the US Dollar (USD) also declined, in some sort of correlation. Traders applaud the idea that the Federal Reserve has ended the increase, although fears are growing that a recession is looming first before ringing bells on any optimistic scenario. In this context, the US Dollar could lose further value against most major currency pairs.

Crude oil (WTI) is trading at $73.24 per barrel and Brent oil at $78.09 per barrel at the time of writing.

Oil Markets and News: Markets Surprised by US Production

  • Goldman Sachs analysts Daan Struyven and Callum Bruce noted that the United States has increased its oil production.
  • Figures released this week by the American Petroleum Institute (API) and the Energy Information Administration (EIA) indicated an increase in crude oil reserves in the United States.
  • The assumption of an upcoming recession in the US could affect the outlook for oil demand in the short term. With the supply surplus caused by the United States, oil prices could continue to fall.
  • Markets will close on Friday with Baker Hughes oil rig data at 18:00 GMT. The previous figure was 494.

Oil Technical Analysis: US Quietly Challenges OPEC+

Oil prices are bracing for further volatility as some new elements will be put on the table this week. The recent drop in crude oil prices can be attributed to the recent buildup of crude oil reserves in the United States. With this sudden increase in supply in the oil market, a surplus is being created that weakens the supply cuts from Saudi Arabia and Russia, failing to sustain Brent futures above the $80 level.

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

To the downside, a soft bottom is forming near $74.00. This level is acting as the last line of defense before entering $70.00 and below. Once in that area, markets could factor in the risk of a surprise OPEC+ intervention to push oil prices back up.

US WTI Crude Oil: Daily Chart

WTI Crude Oil: Daily Chart

Frequently asked questions about WTI Oil

What is WTI Oil?

WTI Crude Oil is a type of crude oil that is sold in international markets. The acronym 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 reference 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 factor in prices. 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 reports on Oil inventories 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 decrease 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 1% drop 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 the production quotas of member countries at biannual meetings. Their decisions usually influence the prices of WTI Oil. 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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