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.

US Crude (Daily Chart)