Oil soars 4% intraday, despite demand drops and US slaps sanctions on Russian crude
- Oil (WTI) trades jumps higher and breaks above $85.
- The US Dollar rallied Thursday on the back of an unexpected pickup on food and energy inflation.
- Oil is looking for direction with several elements backing both lower and higher prices.
Oil prices are nearly set to close off this week in the green, despite registering a sell-off on the back of nearly no spillover from the Israel-Gaza conflict so far. Adding to that, the rise of US oil production together with a massive surprise buildup of Crude stockpile signalled increased supply, putting further pressure to Oil prices. Risks of a mild first few weeks of fall season, with global stagflation fears where demand for Oil would drop even further, are not painting a rosy picture for Crude in the coming weeks.
On Thursday, the US imposed sanctions on owners of tankers carrying Oil from Russia, in a sign that the country is enforcing the sanctions plan approved against Russia after it invaded Ukraine, Reuters reports. Increased scrutiny over Russian Oil could hurt supply as the country is the world’s second-largest Oil producer. This also means the stakes are becoming high for the upcoming visit of Russian President Vladimir Putin to China. Putin is expected to meet Chinese President Xi Jinping on the sidelines of the Belt and Road Forum, which will be held in Beijing on October 17 and 18. In the context of increased US sanctions, Putin will likely push to secure a deal for Gas and Oil deliveries to the Asian bloc.
Meanwhile, the US Dollar (USD) showcased its resilience on Thursday after one component of the monthly headline inflation gauge ticked up against all odds. Inflation fears got reignited again, triggering a bond sell-off. US yields soared, fueling the Greenback rally against most major peers. It looks like this week’s weakness for the US Dollar was just a small decoupling, and more strength is to be factored in.
Crude Oil (WTI) trades at $85.70 per barrel, and Brent Oil trades at $88.99 per barrel at the time of writing.
Oil news and market movers
- China Crude imports are slowing down. In September, nearly 45.74 million tons were shipped, which is about 11.18 million barrels per day and 10% lower than August’s numbers.
- Crude prices for November for Asian clients have dropped by about $2 per barrel from their 2023 peak in September. The price drop came after Saudi Arabia confirmed its support to keep prices stable, which traders saw as a reassurance output would be boosted again when needed.
- The total US oil production has set a new 5-year high record, making the country less dependent on foreign inflow.
- The Energy Information Administration (EIA) printed the latest Crude stockpile numbers, with a big beat on expectations: Crude stocks increased by 10.176 million barrels, way above the 0.492 million rise expected.
- Near 17:00 GMT, the weekly Baker Hughes Rig Count will be published. Previous number was at 497, no forecast penciled in.
Oil Technical Analysis: Positive weekly close in reach
Oil prices were sinking lower since prices peaked near $94. With Oil trading near $85.50, it nearly looks likely for it to head below $80. Fundamentals for Oil look weak taking into account slowing demand from Asia, US Oil production at a multi-year high and risks of global stagflation. Either OPEC+ will need to add more supply cuts or a pickup in activity across the globe is needed to warrant steady oil prices near $85.
On the upside, the support level near $88 is the first level in the bulls’ radar. From there, the next level will be this year’s high at $94. Should a substantial squeeze unfold with higher prices, look for $97.11, the high of August 2022.
On the downside, traders are bracing for the entry of that region near $78. The area should see ample support for buying. Any further drops below this level might see a firm nosedive move, which would cause Oil prices to sink below $70.
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US Crude (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.
