The price of oil suffers as Russia does not comply with OPEC+ production cuts

  • The price of WTI oil sinks further as oversupply continues to weigh on markets.
  • Despite tensions in the Red Sea, oil continues to flow.
  • The DXY Dollar Index surpassed the 103.00 level and is at a crossroads awaiting further rises.

The price of oil falls close to 1% again this Wednesday, with oil investors sending black gold lower. The move comes after recent figures from Russia reveal it is not delivering on production cuts it agreed to at the last OPEC+ meeting last year. With a volume of crude oil transported by sea close to 3.43 million barrels per day, Russia fails to fulfill its commitment to reduce its production by 500,000 barrels per day, and instead only reduces it by 134,000 barrels per day.

Meanwhile, the DXY Dollar Index has returned to the upside as former US President Donald Trump's victory in Iowa has sparked substantial appreciation in the greenback. A second appreciation came overnight, with the US Federal Reserve's Christopher Waller backtracking on earlier dovish comments and now bucking the markets' enthusiasm. In a revaluation towards longer stable interest rates, stock markets fall, yields soar and the dollar benefits.

Crude oil (WTI) is trading at $71.05 per barrel, and Brent is trading at $76.58 per barrel at the time of writing.

Oil and Markets News: Many Things in Motion

  • The World Economic Forum in Davos is entering its third day and quite a few comments from central bankers are already being published.
  • The monthly report on OPEC markets will be reported around 12:00 GMT.
  • Around 9:30 p.m., the American Petroleum Institute (API) will publish weekly crude oil reserves. The previous figure was a large reduction of 5.215 million barrels.
  • Local oil prices in the US are seeing a wider spread with Bakken shale production facing disruption. Prices near Houston rose $2.20 per barrel versus Cushing, Oklahoma prices. Significant declines are also possible at Cushing, as Midwest refiners will have to turn to Cushing to replace lost supply from the Bakken via the Dakota Pipeline.

Oil Price Technical Analysis: Can OPEC Report Shake Markets?

Oil prices are taking a hit again, for the third day this week. Although it was already trading at weekly losses, the revelation that Russia is failing to comply with the production cuts to which it had committed is bad news for the balance between supply and demand. Another increase in supply means the balance is tilting again towards lower prices with refiners and buyers having the luxury of choosing the cheapest one to buy from in a market crowded with sellers.

To the upside, $74 continues to act as a line in the sand after another failed break above on Friday. Although quite far away, $80 will come into play if tensions rise further. Once $80 is broken, the $84 level is the next upside once the oil price sees a few daily closes above the $80 level.

On the other hand, below $74, the $67 level could be the next support for WTI as it aligns with a June triple bottom. If the triple bottom is broken, the new low could be $64.35, the May-March 2023 low, 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.

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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