Oil steady above $74 with Angola and Red Sea most important tensions to start 2024
- WTI Oil pops back above $74 in a volatile week ahead of Christmas.
- Angola announced on Thursday it will leave OPEC in January.
- The DXY US Dollar Index flirts with a substantial breakdown that could erase a half year worth of gains.
Oil prices are back on track towards $84 on Friday, propelled by geopolitical tensions in the Red Sea. Still making headlines going into these last hours of trading before Christmas, Houthi rebels have made the Red Sea a no-go zone for all big freight operators. With a vast number of fleets being redirected around Africa, the demand and price pressure are expected to jump in the coming weeks for Crude. Meanwhile, Angola announced Thursday that the country is leaving OPECi9c-fza1 due to disagreements over lower Oil quotas for the country.
The US Dollar (USD) is sinking as markets go all-in on interest-rate cuts for early 2024. The move comes in contradiction with several warnings from Federal Reserve (Fed) members, who came out saying markets are too eager and too enthusiastic about any rate cuts coming in 2024. The elevated rate differential from US yields against other countries – the main driver for the US Dollar strength in 2023 – appears to be fading, likely leading to mayhem and dislocation between the Fed and global markets at the start of 2024.
Crude Oil (WTI) trades at $74.59 per barrel, and Brent Oil trades at $79.474 per barrel at the time of writing.
Oil News and Market Movers: Issues for Suez Canal
- The Sonangol Cabinda has made a U-turn and is on its way back to the Suez Canal. The ship was attacked on Monday by Houthi Rebels, triggering red flags for all major freight operators to steer their fleets away from the area.
- Angola said on Thursday that it will leave OPEC in January. The news does not come as a surprise because Angola was one of the leading African nations that was opposing Saudi Arabia in its demand to share production cut burdens with the whole OPEC group.
- A steep decline in the number of tankers in the Red Sea is being reported on Friday morning.
- The Baltic Dry Index rallies higher, with shipping costs soaring because of the longer route around Africa.
- Should Friday’s US data confirm a further decline in inflation, expect to see Crude shoot higher as demand is expected to pick up in early 2024 with rate cuts from the Fed firing up the economy.
Oil Technical Analysis: Rally into 2024
Oil prices are jumping higher as the OPEC+ club faces increasing woes. With Angola leaving the bloc, several other African nations could join. The statement could not have come at a worse time as Brasil is set to enter the organization as an observer, not taking part in production decisions. The more OPEC loses its grip on Oil prices, the wilder and more volatile the price action will get.
On the upside, $74 got broken and tested for support, offering more upside. Once through there, $80 comes into the picture. Although still far off, $84 is next on the topside once Oil sees a few daily closes above the $80 level.
Below $74, the $67.00 level could still come into play as the next support level to trade at as it aligns with a triple bottom from June. Should that triple bottom break, a new low for 2023 could be close at $64.35 – the low of May and March – as the last line of defence. Although still quite far off, $57.45 is worth mentioning as the next level to keep an eye on if prices fall sharply.
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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.
