Oil price trades lower on global trade fears, US Dollar cushions fall
- Oil price opens the week lower on concerns global trade may be impacted by geopolitical wrangling at G7 summit.
- China provokes the United States by banning US-manufactured micro chips.
- Oil recovers after US Dollar weakens on continued debt-ceiling uncertainty as talks reopen in Washington.
Oil price gaps lower at the start of the week on concerns global growth may suffer, after the world’s leading economies antagonized China at the G7 summit in Hiroshima. World leaders discussed ‘de-risking’, or weaning themselves off an over-reliance on Chinese imports at the summit. Washington and Beijing exchanged harsh words as China banned imported memory chips from US manufacturer Micron, after failing to pass a security test. A weakening US Dollar on debt-ceiling concerns, however, provides a counter balance that helps underpin Oil prices.
At the time of writing, WTI Oil is trading in the lower $72s and Brent Crude Oil in the lower $76s.
Oil news and market movers
- Oil price falls on global growth and trade concerns after major economies clash at the G7 summit in Japan.
- Geopolitics polarizes the G7 into two competing camps – China and Russia, who are seen as threats to world prosperity and peace – and the rest, led by the United States.
- China provokes the US by banning imports of memory chips from US manufacturer Micron, citing security risks.
- Oil price subsequently recovers, however, supported by a weaker US Dollar.
- The Greenback remains under pressure as the debt-ceiling impasse trundles on.
Crude Oil Technical Analysis: Downtrend showing signs of ending
WTI Oil is in a long-term downtrend, making successive lower lows. Given the old adage that the trend is your friend, this favors short positions over long positions. WTI Oil is trading below all the major daily Simple Moving Averages (SMA) and all the weekly SMAs except the 200-week which is at $66.89.
-638203550939866230.png)
WTI US Oil: Daily Chart
A break below the year-to-date (YTD) lows of $64.31 would be required to reignite the downtrend, with the next target at around $62.00 where trough lows from 2021 will come into play, followed by support at $57.50.
Despite the bearish trend dominating, there are signs pointing to a possible conclusion. The mild bullish convergence between price and the Relative Strength Index (RSI) at the March and May 2023 lows – with price making a lower low in May that is not matched by a lower low in RSI – is a sign that bearish pressure is easing.
The long hammer Japanese candlestick pattern that formed at the May 4 (and year-to-date) lows is a sign that it could be a key strategic bottom.
Oil price bulls, however, would need to break above the $76.85 lower high of April 28 to bring the dominant bear trend into doubt.
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
Joaquin Monfort
FXStreet
Joaquin Monfort is a financial writer and analyst with over 10 years experience writing about financial markets and alt data. He holds a degree in Anthropology from London University and a Diploma in Technical analysis.
