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Oil up on rumors of more European sanctions against Russian oil

  • WTI Oil trades will likely close the week with significant losses. 
  • The US Dollar weakens as markets price in that the Fed is done hiking. 
  • Oil could show some brief blips on rumours from OPEC, but a further decline cannot be ruled out. 

Oil prices are popping higher this Friday on rumours that the EU is planning to issue a fresh sanction package against Russia. Meanwhile Bulgaria may end the exemption for Russian Oil imports as of March. This puts pressure on Russian Oil and might ramp up prices as more demand will be put on the global oil market to fill the Russia gap. 

Meanwhile, the US Dollar (USD) declined as well, in some sort or form of correlation. Traders are applauding the idea that Fed is done hiking, though fears are mounting that first a recession is ahead before bringing out the champagne on any Goldilocks scenario. In this context, the US Dollar might lose more value against most major currency pairs. 

Crude Oil (WTI) trades at $74.03 per barrel and Brent Oil trades at $78.52 per barrel at the time of writing. 

Oil news and market movers: EU set to issue new package

  • Europe to ban sales to Russia, or for use in Russia, of tankers of any origin for crude or Petroleum products in a next sanctions package. 
  • Goldman Sachs analysts Daan Struyven and Callum Bruce pointed out that the United States has ramped up its Oil production. 
  • Both numbers this week from the American Petroleum Institute (API) and the Energy Information Administration (EIA) indicated a build in crude stockpile in the US. 
  • The presumption of an upcoming recession in the US will likely kick in,  weighing on the outlook for Oil demand in the near-term. With the supply surplus triggered by the US, more downside is in the cards for Oil prices.
  • Markets will close off Friday with the Baker Hughes US Oil Rig Count data at 18:00 GMT. Previous number was at 494. 

Oil Technical Analysis: Surprise supply surplus to be factored in

Oil prices are gearing up for more volatility ahead as a few new elements are being brought to the table this week. The recent decline in Crude prices can be attributed to the recent buildup in US Crude stockpiles. With this sudden increase in supply in the Oil market, a surplus is being built that takes the wind out of the supply cuts from Saudi Arabia and Russia, failing to sustain Brent futures over the $80 level. 

On the upside, $80.00 is the resistance to watch out for. Should crude be able to jump higher again, look for $84.00 (purple line) as the next level to see some selling pressure or profit taking. Should Oil prices be able to consolidate above there, the topside for this fall near $93.00 could come back into play.

On the downside, traders are seeing a soft floor forming near $74.00. This level is acting as the last line of defence before entering $70.00 and lower. Once in that area, markets might factor in the risk of a surprise intervention from OPEC+ to jack Oil prices back up again. 

US WTI Crude Oil: Daily Chart

US WTI Crude 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.

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Filip Lagaart

Filip Lagaart is a former sales/trader with over 15 years of financial markets expertise under its belt.

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