- WTI oil once again exceeds $74 in a week of volatility before Christmas.
- Angola announced on Thursday that it will leave OPEC in January.
- The DXY Dollar Index is flirting with a substantial break that could erase half a year of gains.
Oil prices approach $84 again on Friday, driven by geopolitical tensions in the Red Sea. The Houthi rebels, who are still in the news in these last hours of trading before Christmas, have turned the Red Sea into a prohibited zone for all large freight transport operators. With large numbers of fleets rerouted around Africa, demand and price pressure is expected to soar in the coming weeks for crude oil. Meanwhile, Angola announced on Thursday that the country is leaving OPEC due to disagreements over reducing oil quotas for the country.
The US dollar (USD) sinks as markets bet on interest rate cuts by early 2024. This move contradicts several warnings from members of the Federal Reserve (Fed), who stated that markets are too anxious and excited about any rate cuts that come in 2024. The high rate differential in US yields versus other countries – the main driver of the dollar’s strength in 2023 – appears to be fading, likely causing chaos and dislocation between the Fed and global markets in early 2024.
Crude oil (WTI) is trading at $74.81 per barrel, and Brent is trading at $79.94 per barrel at the time of writing.
Market drivers and oil news: Angola leaves OPEC
- Angola announced on Thursday that it will leave OPEC in January. The news is not surprising because Angola was one of the main African nations opposing Saudi Arabia in its demand to share the burdens of the production cut with the entire OPEC group.
- A sharp decline in the number of oil tankers in the Red Sea is reported on Friday morning.
- The Baltic Dry Index rebounds, with transport costs soaring due to the longer route around Africa.
- If US data on Friday confirms a further decline in inflation, expect crude oil to shoot higher as demand is expected to rebound in early 2024 with Fed rate cuts reviving the economy.
Oil technical analysis: Angola is gone, who will be next?
Oil prices are rising as the OPEC+ club faces growing problems. With Angola leaving the bloc, several other African nations could join. The declaration could not come at a worse time, since Brazil is going to enter the organization as an observer, without participating in production decisions. The more OPEC loses control over oil prices, the wilder and more volatile their evolution will be.
To the upside, the $74 zone was broken and support was tested, offering further upside. Once broken, the $80 level comes into play. Although still a ways off, $84 is next on the upside once oil sees a few daily closes above the $80 level.
Below $74, the $67 level could be the next support level as it aligns with a June triple bottom. If the triple bottom is broken, the new low for 2023 could be near $64.35, the low of May and March, as the last line of defense. Although it is still quite far away, it is worth mentioning $57.45 as the next level to watch if prices fall sharply.
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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
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
