Oil reverses earlier spikes as Russia raises November levy on Crude exports
- Oil (WTI) trades back near $86, after brief peak.
- The US Dollar closed out last week with another weekly gain, though the highs point to a retreat from the bulls.
- Oil sinks in knee jerk reaction after Iran heigthens tensions while Russia enlarges Crude exports.
Oil prices were jumping and are reversing earlier breakouts as Russia raises its levy on Crude output for November to the highest penalty for this year. By this, the earlier jump in Crude oil gets erases on the back of comments from Iran that mentioned a political solution for Israel and Palestina is nearing its maturity and an extended war is at hand. Oil traders are getting thrown left and right this Monday in what is a headline driven market for now.
Meanwhile, the US Dollar (USD) recovering last week might leave traders and investors badly positioned to start this week. Headline inflation might have ticked up a touch, pressuring the market with rates soaring back to 52-week highs as a result. Although the US Dollar Index (DXY) eked out a weekly gain on Thursday and Friday, it was yet again a close call as the Greenback trade seems uncertain to continue on Monday.
Crude Oil (WTI) trades at $85.80 per barrel, and Brent Oil trades at $89.36 per barrel at the time of writing.
Oil news and market movers
- Russia will raise its export levly to the highest for this year, for a fourth consecutive month.
- Iran issued a statement saying that time is running out for any political solution in the Gaza region. A possible expansion of war is approaching the inevitable stage.
- The risk in the oil market over the Gaza crisis remains extremely fragile. With US President Joe Biden’s possible visit to Israel, tensions could reemerge, and a spillover proxy war is still a possibility that could unfold.
- The recent build in the US Crude Stockpile is far from enough to avoid a multiyear low and might risk the supply chain across the US.
- The amount of Crude oil around the world being loaded in tankers that are stationary for at least seven days has fallen to 74.71 million barrels as of October 13. This is the lowest number since December.
- Several analyst reports have said there is currently a supply surplus going unused. If it were to come on line, this could squash any uptick in Crude prices quite quickly and keep it below $100 for an ample amount of time.
Oil Technical Analysis: Oil tanks on Russian levy
Oil prices shot higher last week as the risk premium over the Israel-Gaza escalation expanded as Israel positioned itself to start its ground invasion in the region. Meanwhile, markets are struggling to send oil prices higher as Saudi Arabia could easily cap Oil prices with a surge in supply. The Oil market rests for now on a thin equilibrium that could witness knee- jerk reactions based on headlines to come
On the upside, the support level near $88 is the first level on 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.
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US Crude (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.
