Oil price rebounds to new yearly high on aggressive Saudi cuts

• The price of oil (WTI) marks a new yearly high.
• Dollar falls ahead of key US jobs report.
• Baker Hughes’ oil rig count will be released on Friday.

Oil prices have rebounded strongly and continue the trend on Friday with figures revealing Saudi Arabia’s aggressive cuts in its exports. Although it has not yet been officially confirmed, it is that Saudi Arabia and Russia will announce that they will do more in terms of supply control. Riyadh is expected to extend its brake of 1 million barrels per day. Meanwhile, Russian Deputy Prime Minister Alexander Novak mentioned that a cut of 300,000 barrels per day will materialize this month.

This rattles the supply side of oil, meaning market participants have to dig deeper into their portfolios. At the beginning of the week, crude oil was just below $80, while it is currently trading above $83. A new yearly high could be within reach, depending on official announcements from both Saudi Arabia and Russia in the coming days.

At the time of writing, Crude Oil (WTI) is trading at $84.33 per barrel and Brent at $87.93.

Oil news and markets engines

• Figures for Saudi Arabian crude exports reveal a substantial cut in production to just 5.5 million barrels per day in August, compared to 6.2 million in July and 6.6 in June.
• The Garyville (Louisiana) refinery outage has been fixed and is back in operation.
• Shanghai’s weekly medium sour crude stocks fell 15%.
• Indian refiners are back in business with traditional suppliers as lucrative and cheap Russian oil supplies appear to be easing.
• The key US employment report, or Non-Farm Payrolls (NFP), will be released at 12:30 GMT. Of all its components, some have more potential than others to affect markets. The change in the NFP is the key figure, and it is expected to decline from the previous 187,000 to 170,000. The average month-on-month change in hourly earnings, which measures wage growth, is expected to slow a bit, to 0.3% from 0.4%. Meanwhile, the headline unemployment rate is expected to remain at 3.5%.
• Final confirmation of the above trend, based on US Non-Farm Payrolls, will come from the August ISM Manufacturing PMI, which is expected to rise slightly to 47.0 from 46.4. Despite the rise, this would still signal a contraction in US factory activity. The Employment Index is expected to remain practically stable, from 44.4 to 44.2 points. The New Orders Index would fall from 47.3 to 46.3. The Prices Paid Index would increase from 42.6 to 43.9.
• US Baker Hughes Oil Rig Count data is expected to close the week at 17:00 GMT. The previous figure stood at 512, and a lower number could become an 18-month low.
• Equity markets are mixed this Friday as investors await further guidance from the US jobs report on Friday.

Oil Technical Analysis: Saudi Push

The oil price has broken its losing streak with a fourth straight day of gains this week. Crude is flirting with a new yearly high. Should the supply cuts be larger than expected, with further strategic reserve draws in the coming weeks, oil could return to $92.

To the upside, $84.28, the high of August 10, is the level that must be overcome for the bullish breakout to be confirmed. If WTI continues to rally on lower supply and higher demand, not much stands in the way of reaching the blue line of $92.80. Of course, the psychological level of $90 will have to be faced first.

To the downside, a temporary bottom is forming around $77.50, which has acted as a base this week. If Baker Hughes’ rig count rises substantially, hopefully it will test the ground as more supply is likely. 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