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Oil price takes a breather, despite downside risks

  • WTI oil is trading near $70 and briefly broke below it on Wednesday and Thursday.
  • Oil outlook points to further declines as recent API and EIA data revealed substantial exports from the US.
  • The DXY Dollar Index fell on Thursday, while the Japanese Yen soared 4% at one point against the Dollar.

Oil prices are taking a small pause around $70, after their firm decline earlier in the week. If we look at oil prices and the events taking place, it all comes down to simple supply and demand. There is currently too much supply, which OPEC+ seems unable to control or limit. Meanwhile, the United States is dumping all available barrels on the market to take the wind out of Russian sales and, locally, is trying to drive down gasoline prices with a presidential election just around the corner in 2024.

Meanwhile, the US Dollar (USD) took a kick from the back of the Japanese Yen (JPY), which weighed on the US Dollar Index DXY. The Yen rose 4% against the Dollar, thanks to comments from the Bank of Japan that alluded to the end of decades of negative yields. With this substantial change in the Bank of Japan’s monetary policy, traders are preparing this Friday for the release of the US employment report, where any figure below expectations could trigger another substantial weakness for the US dollar and the DXY index.

Crude oil (WTI) is trading at $70.56 per barrel and Brent at $75.30 per barrel at the time of writing.

Oil News and Market Drivers: US Markets Flooded

  • Traders remain skeptical of the supply cuts promised by OPEC+, as these promises are neither binding nor mandatory.
  • The International Energy Agency (IEA) remains bearish on its outlook for oil, pointing to still weak demand from China.
  • Meanwhile, US shale production has grown substantially and is one of the main reasons for the country’s massive increase in exports in the oil market.
  • Markets and traders should be attentive to the emergency meetings of OPEC or OPEC+, in which more severe measures could be outlined that could trigger a substantial turn in price developments.
  • To close the day on Friday, the Baker Hughes oil rig count will be published around 18:00 GMT. The previous one was 505.

Technical Analysis of the oil price: Operators do not believe in OPEC+

Oil prices are facing problems, image to be precise. Traders are placing more bearish bets on oil prices after OPEC+ failed to put in place firm measures that could support oil prices. As long as OPEC+ fails to form a united front, the only result will be a further decline, as its arch-nemesis, the US, is pouring millions of barrels a day into an already saturated oil market.

To the upside, the $80.00 level is the resistance to watch. Should crude oil break above this resistance 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, weak support near $74.00 was broken. For now, the $70.00 level is trying to save the situation, although it has already been tested on Thursday and Wednesday. Pay attention to $67.00, which coincides with a June triple low, as the next support level for the oil price.

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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