Oil halts decline at $86 after ADP turns out to be big miss on estimates

Oil prices are taking a turn for the worse with a batch of disappointments throughout this Wednesday. No surprises there as both Russia and Saudi Arabia keep their commitment to cut until December. Meanwhile, the American Petroleum Institute (API) issued its recent numbers overnight, communicating a drawdown of -4.21 million barrels last week against the build of 1.586 million the previous week and the monthly ADP job numbers turns to be a big miss on estimates. 

The US Dollar (USD), meanwhile, is gearing up for a very nervous trading day, while the US Dollar Index (DXY) resides near the high of the past 48 weeks. Expect to see a pick up in volatility as not only a big batch of data points is due to come out. But the Polish central bank is due to issue its next rate decision, and it promises to be a surprise after last week’s 75 basis point cut.

Crude Oil (WTI) trades at $86.50 per barrel, and Brent Oil trades at $88.80 per barrel at the time of writing. 

Oil news and market movers

• Wednesday’s OPEC+ report had Saudi Arabia and Russia reaffirming plans to curb oil production by 1 million barrels per day for Saudi Arabia and 300,000 barrels per day for Russia until the end of the year. The report went on to say that the measure is intended “to reinforce the precautionary efforts made by OPEC+ countries with the aim of supporting the stability and balance of oil markets.” 
• Russia said that a partial lift of the current fuel export ban has been discussed, according to TASS.
• The current downturn in oil prices, despite these supply cuts, has mainly contributed to the current elevated level in US yields. Expectations are that demand will start to kill off and turn the current target lower as supply scales above a demand fall-off. 
• As any normal Wednesday, the Energy Information Administration (EIA) is due to release its stockpile changes in the US. Expectations again call for a drawdown, this time from -2.17 million barrels to -0.092 million. The Cushing strategic stockpile reserve will get even more attention. Last week, it was already at a critical low level. Expect numbers to be issued near 14:30 GMT. 

Oil Technical Analysis: US slips on weak ADP

Oil prices drop like a stone despite OPEC+ trying to ramp up prices by confirming its current production cuts until the end of the year. Though in September markets set oil prices soaring on the back of that announcement, those same comments today are pushing prices lower. The current elevated level in US yields against the lower levels in September makes traders assess that demand will soon come to a standstill, where current total supply might be more than enough to deal with the slashed demand. 

On the upside, the double top from October and November of last year at $93.12 remains the level to beat. Although it got breached on Thursday, the level never got a daily close above it. Should $93.12 be taken out, look for $97.11, the high of August 2022.

On the downside, the floor at $88 is unable to support anymore. With $88 breaking, the peak of August 10 needs to be enough to catch the dip near $84.20. If that does not do the trick, a harsh decline to $78, sub $80, could materialize.

US Crude (Daily Chart)