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Oil rises slightly after Biden’s assurances on the debt ceiling and the rebound in demand

  • Oil price rises on optimism that a debt ceiling deal will be reached, which will prevent a financial crisis and secure future demand.
  • US dollar falls as safe-haven demand eases on debt ceiling concerns. Oil is mainly quoted in USD.
  • The dollar’s slide is likely to be contained in the face of rising inflation expectations.
  • Oil price is in a technical downtrend, which favors shorts, although there are signs that it could be bottoming out.

The oil price traded slightly higher on Friday as a mix of optimism about the debt ceiling and the start of the US driving season suggests that future demand will remain resilient. The Dollar Index (DXY) is down a quarter of a percentage point at the time of writing, supporting crude oil prices, which are mainly quoted and traded in US dollars.

WTI Crude Oil is currently trading around $72 and Brent around $76.

Oil news and movements in the markets

  • The president of the United States, Joe Biden, has assured that he will do everything necessary to reach an agreement that raises the debt ceiling, avoids a financial crisis and ensures the future demand for Oil: “We are going to unite because there is no alternative he said ahead of talks with House Speaker Kevin McCarthy on Thursday.
  • The start of the US driving season is just around the corner, and gasoline demand is expected to pick up for it.
  • Data from the Joint Organizations Data Initiative (JODI) on Thursday showed an increase in global oil demand in March, providing new support for crude prices.
  • The JODI report showed an increase in global demand of 3 million barrels per day (bpd) in March.
  • The US dollar is under pressure as debt ceiling fears ease, reducing safe haven demand.
  • However, the fall of the dollar is slowed by the expectations that the continuation of the inhibition of indebtedness and growth will translate into an increase in inflation and interest rates that, if materialized, will serve as support for the dollar.

Crude Oil Technical Analysis: Downtrend Shows Signs of Completion

WTI Crude Oil is in a long-term downtrend, making lower lows. Keeping in mind the old adage that the trend is your friend, this favors short positions over long ones. It is trading below all the major daily simple moving averages (SMAs) and all the weekly SMAs except the 200-week SMA at $66.8.

US WTI Oil: Daily Chart

A break below the year-round lows of $64.31 would be needed to reignite and reconfirm the downtrend, with the next target around $62.00, where 2021 lows will come into play, followed by support at $57.50.

Despite the dominant downtrend, there are signs that it could be coming to an end. There is a slight bullish convergence between the price and the RSI at the March and May 2023 lows, with the price making a lower low in May that does not coincide with a lower low on the RSI. This is a sign that the bearish pressure is easing.

The long hammer candlestick pattern that formed at the May 4 (and year-to-date) lows is another sign that it may have been a key strategic bottom.

However, the bulls would have to break above the lower high of $76.85 on April 28 to cast doubt on the prevailing downtrend.


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, including Brent and Dubai crude. WTI is also known as “light” and “sweet” because of 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 hub, considered “the pipeline junction of the world.” It is a reference for the Oil market and the WTI price 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 affect 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 mainly 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?

The 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 decline in inventories, it may indicate an increase in demand, which would drive up the price of oil. An increase in stocks may reflect an increase in supply, which lowers prices. The API report is released every Tuesday and the EIA report the following day. Their results are usually similar, with a 1% drop between them 75% of the time. The 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 in biannual meetings. Their decisions often influence WTI oil prices. When OPEC decides to cut quotas, it can restrict supply and drive up oil prices. When OPEC increases production, the opposite effect occurs. OPEC+ is an extended group that includes ten other non-OPEC member countries, among which Russia stands out.

Source: Fx Street

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