Oil rally becomes issue for soft landing US economy as Saudi, Russia supply cuts are worrying

Oil price is a trending topic this week after the surprise extended and increased production cuts announced by Russia and Saudi Arabia. Journalists will be keen to see the first eye contact, if there will be any, between US president Joe Biden and Crown Prince Mohammad bin Salman al-Saoed at the G20 meeting this weekend in India. Several analysts are seeing an attempt from Russia to crash the US economy and make it impossible for the US Federal Reserve to accomplish that soft landing as inflation might pick up again with gasoline and energy prices on the uprising again. 

Meanwhile, the US Dollar was the king on Tuesday as stock markets traded in the red across the globe. The US Dollar Index (DXY) was in the green against every major G20 peer. On Wednesday, the US Dollar takes a step back as European Central Bank member Klaas Knot said that a surprise hike might still come in September, making markets pare back bets of no hikes to a 50-50 valuation in favour of a stronger Euro and weaker US Dollar. 

At the time of writing, Crude Oil (WTI) price trades at $85.99per barrel and Brent Oil at $89.44

Oil news and market movers

• From a cyclical point of view, oil prices in the first half of 2023 have been on a declining path. After recent announcements and the run up to them, is resulting in an uptrend for the second half of 2023.
• US oil production could be seen surpassing Saudi and Russian production by next year if OPEC+ cuts persist. 
• OPEC+ heavyweights have pencilled in their commitments. The dust starts to settle as markets have digested the announcements, although questions remain around Saudi Arabia’s commitments. The country has been known for backtracking and even performing knee jerk reactions on previous statements. 
• Brent Oil is being labelled with a price target of $100 per barrel, with several banks and analysts revising their projections higher.
• Markets have not heard yet of US president Joe Biden as these elevated oil levels will trickle into higher gasoline prices at the pumps. A bad omen for the current ruling president  in his quest to get inflation down and control gasoline prices for households. Chances of a substantial coordinated release of oil reserves might be again the playbook. 
• As production-related headlines start to die down, the focus is likely to shift to the inventory side. 
• The American Petroleum Institute will publish at 20:30 GMT its weekly Crude Oil stock numbers. Previous reading was a drawdown of 11.486 million barrels. Any buildup in the stockpile could further weaken oil prices. 
• Equity markets are in the red on Wednesday, with biggest losses in the United Kingdom, where the FTSE 100 is down near 1%.

Oil Technical Analysis: foul play

Oil prices are hitting a wall on the upside after its price action was boiling over as the Relative Strength Index (RSI) heads into overbought territory. This means that less buying will start to take place as traders will see less upside potential when entering into a long Crude Oil position at these elevated levels. Look for the RSI to cool down a touch before the next upswing materialises. 

On the upside, $84.28, the high of August 10, has been broken and should hold as support. IfWTI continues to rally on the back of lower supply and more demand, not many elements could be standing in the way of reaching that green line at $92.80. Of course, the $90 psychological level needs to be faced first. 

On the downside, a temporary bottom is being formed around $77.50, which acted as a base for this week. Should the API stockpile count jump substantially higher, expect to see the floor tested as more supply is bound to come on the markets. Once bears make it through the yellow box level plotted in the chart, expect to see more downside toward $74 before finding ample support to slow down the sell-off. 

WTI US OIL daily chart