WTI outlook: Oil traders in limbo?

Oil prices moved lower since last week but no decisive direction for oil prices appears to be in sight. Today we are to take a look at the incoming Trump administration and discuss the recent IEA oil report. We are to conclude the report with a technical analysis of WTI’s daily chart. 

Looming trade war between the USA and China

The US Presidential elections have concluded and thus we now turn our attention to the cabinet composition of the incoming Trump administration. In particular, we would emphasize the recent announcement by President-elect Trump, that Republican Senator Marco Rubio will be nominated to the cabinet position of Secretary of State. We must note that despite the Republican party having managed to secure a trifecta in which they now officially have control over the House of Representatives, Senate and the Office of the President, cabinet positions must still be confirmed by the Senate. Nonetheless, the nomination of Senator Rubio, signals that the Trump administration appears to be poised to go through with the tariffs on Chinese imports in a possible attempt to weaken the Chinese economy. Moreover, the appointment of Rubio could lead to a stricter enforcement of oil sanctions against Iran and Venezuela, as the Senator has previously pushed for a tougher stance against the aforementioned nations. The implications of stricter oil sanctions on Venezuela and Iran could lead to an increase in oil supply chain concerns which in turn could aid oil prices. Furthermore, the decision to pick Senator Rubio as Secretary of State may be an early signal as to how the incoming Trump administration perceives China, which is a rival rather than a competitor. However, the possible issue of attempting to weaken China economically could eventually lead to a reduction in oil demand in China which could weigh on oil prices as a result of the potential reduction in demand. Overall, we would not be surprised to see heightened volatility in the oil markets, as the incoming administration's foreign policy could have short-term and longer-term implications on the oil markets.

IEA report shows supply exceeding demand in 2025

According to Reuters, the IEA’s report has stated that global oil supply will exceed demand in 2025 even if OPEC+ cuts remain in place. Moreover, the IEA implies that supply will exceed demand by over 1 million barrels per day in 2025, which may be a source of concern for OPEC+ which has attempted to drive oil prices higher by imposing voluntary oil production cuts. OPEC+ is already facing pressures amongst some of its members to increase oil production, with the rifts between the oil cartel appearing during the year and thus we beg to ask the question as to whether or not  OPEC+ members will maintain the voluntary oil production cuts , should they be asked to in 2025. Overall should oil supply increase, it may weigh on oil prices and vice versa.

Technical analysis

WTI cash daily chart

• Support: 64.75 (S1), 58.80 (S2), 53.77 (S3).

• Resistance: 71.50 (R1), 78.00 (R2), 83.45 (R3).

WTI appears to be moving in a sideways fashion between the 64.75 (S1) support level and the 71.85 (R1) resistance line. We opt for a sideways bias for the commodity’s price and supporting our case is the RSI indicator below our chart which currently registers a figure near 50, implying a neutral market sentiment, in addition to the Bollinger bands narrowing. For our sideways bias to continue, we would require the commodity’s price to remain confined between the sideways moving channel defined by the 64.75 (S1) support line and the 71.85 (R1) resistance line. On the flip side for a bearish outlook, we would require a clear break below the 64.75 (S1) support level with the next possible target for the bears being the 58.80 (S2) support line. Lastly, for a bullish outlook, we would require a clear break above the 71.85 (R1) resistance line with the next possible target for the bulls being the 78.00 (R2) resistance level.