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The price of oil recovers slightly despite the sluggish demand that casts a shadow over the bullish prospects of OPEC

  • WTI oil is trading in the green this week.
  • The Dollar remains stable awaiting US inflation figures.
  • The oil price could recover further, although a full recovery does not appear possible without a substantial catalyst.

Oil prices are beginning to recover little by little. Monday’s rally has already put the weekly performance in the green, although it still needs more rises to become a substantial recovery. A major catalyst is needed, not expected until late November, when OPEC+ meets to release its forecasts for the first half of 2024, with the possibility of further supply cuts.

Meanwhile, the US Dollar (USD) will enter the first phase of volatility this week. In addition to the wealth of data to be released this week, Wednesday’s meeting between President Xi Jinping and US President Joe Biden will lead to substantial moves on commitments or joint statements. Significant swings are expected in the US Dollar Index DXY throughout this week.

Oil (WTI) is trading at $78.37 per barrel, and Brent is trading at $82.50 per barrel at the time of writing.

Oil news and market movements: Markets are not afraid of extensions

  • With global crude oil prices declining, Russian revenues have softened during October from their previous peak. The country only received 18.34 billion dollars, 25 million less than in September.

  • Speculators remain bearish on near-term oil prospects, with no additional OPEC action expected before the November 26 meeting and sluggish demand in Europe and the US. The US maintains demand at a minimum compared to historical data.

  • The spread between supply and demand for crude oil in the North Sea has fallen to its lowest level in 15 months. The narrowing of refining margins and the end of maintenance interruptions are the main reasons, according to the International Energy Agency (IEA).

  • More news from the IEA this Tuesday morning with comments suggesting the oil market is less tense than expected as supply is increasing and a deficit looms until the end of the year, with a surplus in early 2024 at the current rate.

  • Around 21:30 GMT, the American Petroleum Institute (API) will publish its weekly crude oil stock change. Previous data showed a buildup of 11.9 million barrels.

Technical analysis of oil: OPEC+ unable to act

Oil prices are trying to recover, although it will be very difficult, since there is no substantial catalyst to serve as a counterargument to the sluggish demand from China, Europe and the United States. All eyes then point to OPEC+, which can direct supply towards lower volumes and create a shortage in the markets that would drive up oil prices again. For now, though, oil prices will likely decline until the end of November, when OPEC+ will likely try to finally act, issuing new measures to raise them again.

To the upside, the $80 level is the new resistance to watch. Should crude oil rally again, the next level of selling or profit-taking pressure will be $84 (purple line). If crude oil manages to consolidate above this level, the high of this drop at $93 could come back into play.

To the downside, a soft bottom is forming near $74. That level acts as the last line of defense before entering $70 and below. Once in that area, markets could factor in the risk of a surprise OPEC+ intervention to push the oil price back up.

WTI Oil Daily Chart

US 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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