Oil tanks as US inflation print means bad news for supply surplus
- WTI Oil near $69 on Tuesday in the aftermath of the US CPI numbers
- Oil outlook looks bleak for 2024 as oversupply is too big to get matched anytime soon.
- The US Dollar (Index) earases earlier losses and trades near 104.
Oil prices are sinking in the aftermath of the US Consumer Price Index (CPI) numbers. The standstill in both Headline and Core inflation numbers points to no acceleration or quick decline in inflation in the US, while Europe and other big areas are seeing inflation sink. For oil this means the US will persist in dumping every available barrel in the market to at least keep the energy component cheap ahead of the US Presidential elections in 2024.
Meanwhile, the US Dollar (USD) is heading back up, though still bearing losses for this Tuesday. The US Dollar Index is heading back towards 104 in the aftermath of the US inflation numbers. Expectations for Wednesday are that US Federal Reserve Chairman Jerome Powell will remain hawkish and will need to tell markets that cuts are not foreseen and appropriate at all in the nearterm.
Crude Oil (WTI) trades at $69.45 per barrel and Brent Oil trades at $74.10 per barrel at the time of writing.
Oil news and market movers: US inflation means more production
- Russian supply is hitting the markets again after a brief decline caused by severe storms in the Black Sea shipments.
- ABC reports Houthi rebels out of Yemen have attacked a Red Sea tanker in the region.
- Several banks are or have issued their forecasts for 2024, and the economic outlook looks very bleak with lower growth across the board. This means less demand for Oil to come even further in 2024.
- Despite the small uptick on the back of geopolitical tensions flaring up this Tuesday, Brent crude still resides near a five-month-low.
- The American Petroleum Institute (API) is due to release its weekly stockpile change at 21:30 GMT. Previous number was for a build of 594,000 barrels. No forecast pencilled in.
Oil Technical Analysis: Supply facing more surplus
Oil prices are seeing more dark clouds being formed for its performance in the coming weeks and months. Several banks are issuing warnings on global growth concerns, which is of course correlated with the demand for Oil. With these negative bearish outlooks and the current surplus buildup, a return to $90 for Crude looks to be out of the question for some time in case no other events take place that might trigger a supply issue.
On the upside, $80.00 is the resistance to watch out for. Should crude be able to jump above that 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, the soft floor near $74.00 got broken and is gone. Now, $70.00 is trying to salvage the situation, though it has been breached already on Thursday and Wednesday. Watch out for $67.00, which aligns with a triple bottom from June, as the next support level to trade at.
-638379749299241020.png)
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.
Author
Filip Lagaart
FXStreet
Filip Lagaart is a former sales/trader with over 15 years of financial markets expertise under its belt.
