Oil off its peak ahead of EIA stockpile numbers
- Oil (WTI) starts to fade ahead of $90.
- The US Dollar choppy with no major breakouts to report.
- The US Energy Information Administration (EIA) is set to print its weekly US crude stockpile figures.
Oil prices are steady at their new highs even after recent US inflation numbers. The fire started when both Saudi Arabia and Russia committed to extending their supply cuts until the end of the year. Analysts, meanwhile, had ample time to crunch numbers and see a near 1 to 2 million barrels shortfall in the coming months.
The recent August inflation numbers are already pointing to an upward move in inflation pressures from the energy side. Where previous months the energy prices were in deflationary territory, they are now surging higher. The overall US Consumer Price Index Overall jumped therefor from 3.2% to 3.7%.
At the time of writing, Crude Oil (WTI) price trades at $88.39 per barrel and Brent Oil at $91.88.
Oil news and market movers
- Wall Street analysts are cautious on the recent uptrend in oil, with several pointing out that the equity market is not in need of more Oil. The supply side may be tightening, but the demand side could be also shrinking in the near term.
- Another argument is that the next official OPEC meeting is still far away. The OPEC meeting might be a non-event and trigger a pullback in Oil prices as most of the headlines are likely out of the way and no surprises are expected.
- The International Energy Agency (IEA) has said in a recent report that the Oil supply cuts from Saudi Arabia and Russia are creating a significant shortfall and threaten a renewed surge in price volatility. The report contradicts Saudi Arabia’s position that the cuts are due to balance out markets as the coming quarter could bear a supply hole of over three million barrels per day. This would be the largest shortfall in a decade, with little explanation from OPEC+ on why it is so eager to cut.
- The US Energy Information Agency (EIA) is set to publish this week's numbers in terms of change in Crude oil stockpile. Expectations range from a build of 2 million barrels to a drawdown of 4.4 million barrels. So any number above 2 million will see selling pressure on oil prices, where any drawdown bigger than 4.4 million barrels might see Oil prices increase further across the board.
- Equity markets are flat ahead of the US CPI numbers.
Oil Technical Analysis: Fade for now or fade of the rally?
Oil prices keep pushing higher and are setting new records for the year. Although the Relative Strength Index (RSI) is deeply overbought, the newsflow and possible drawdowns in US stockpiles could eke out that last touch of more gains. Do not expect a quick jump up to $93.12 as a bigger catalyst will be needed to cause such a big move.
On the upside, $88 is the first nearby hurdle that has been taken out. From here, it will be a tiered rally toward first $90 and then $93.12, the double top from October-November last year. This means a 5% uptick move is possible in the nearby future.
On the downside, a pivotal level is at $84.30, the high of August 10. In case this level does not hold, a substantial nosedive might occur. In such a case, Oil prices might drop all the way to a key floor near $78.
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WTI US OIL daily chart
WTI Oil FAQs
What is WTI Oil?
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.
What factors drive the price of WTI Oil?
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.
How does inventory data impact the price of WTI Oil
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.
How does OPEC influence the price of WTI Oil?
OPEC (Organization of the Petroleum Exporting Countries) is a group of 13 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.
