Crude Oil unable to avoid Friday's losses with depressed tone in commodity complex
- Crude Oil dips lower again and might be on its way to close below $71.00 for this week.
- Traders assess what the Donald Trump victory means, while concerns about Chinese demand are reemerging.
- The US Dollar Index finds a floor after Fed Chairman Powell said he is committed to finishing his term, and ticks higher going into the US trading session.
Crude Oil eases over 1% in the US trading session on Friday, but remains within the tight range it has been trading in the past four days. The market euphoria following President-elect Donald Trump’s victory appears to be fading as energy markets shift their focus to China, where the prospect of higher US tariffs could continue to hurt growth even more in the context of already sluggish demand for Oil. This could mean even less demand than already forecasted for 2025.
The US Dollar Index (DXY), which tracks the performance of the Greenback against six other currencies, has found support after markets were reassured by Federal Reserve (Fed) Chairman Jerome Powell. Not only did the Fed deliver its 25 basis points (bps) rate cut, but Powell said as well he is not going anywhere. This might take away some uncertainty on whether Powell would finish his remaining two years at the helm of the Fed after Trump’s victory cast some doubts over Powell’s future.
At the time of writing, Crude Oil (WTI) trades at $70.80 and Brent Crude at $74.31.
Oil news and market movers: China gets hurt
- The market rally is easing broadly as the so-called Trump trades take a breather and concerns about China are taking over, Bloomberg reports.
- Looking back to the Oil supply in October from OPEC, production climbed by 370,000 barrels a day. The main part of that increase is from the recovery in Libyan output to above 1 million barrels a day after the resolution of the political crisis over central bank leadership, Bloomberg reports.
- Tropical Storm Rafael is set to hit Texas and Louisiana shores by Saturday, although its impact should remain small with the centre of the Tropical Storm not expected to make landfall, Reuters reports.
- Near 18:00 GMT, the weekly Baker Hughes US Oil rig count is due. No forecast available with 479 as the previous count.
Oil Technical Analysis: Global concern arises
Crude Oil prices are unable to catch a break, which in this case makes sense. Where there are winners, there are losers, and the upcoming US tariffs on China are an issue for Oil. High tariffs would mean that China's exports and economy could face even more setbacks, leading to less demand for Oil from China in 2025 than already anticipated.
On the upside, the hefty technical level at $74.11, with the 100-day Simple Moving Average (SMA) and a few pivotal lines, is the next big hurdle ahead. The 200-day SMA at $76.79 is still quite far off, although it could get tested in case tensions in the Middle East arise.
The 55-day SMA at $70.81 is still to be considered, although it has lost a lot of strength after being chopped up throughout the week. Traders need to look much lower at $67.12, a level that supported the price in May and June 2023. In case that level breaks, the 2024 year-to-date low emerges at $64.75, followed by $64.38, the low from 2023.
US WTI Crude Oil: Daily Chart
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to 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 via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
Author
Filip Lagaart
FXStreet
Filip Lagaart is a former sales/trader with over 15 years of financial markets expertise under its belt.
