Oil drops on negative China outlook and inadequate OPEC+ response


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  • WTI Oil  falls to a near six-month-low and sees another push to the downside.
  • The US Dollar is in the green and books gains against all G10 currencies.
  • Oil faces risk of falling to $74 should Wednesday’s EIA stockpile numbers point to an even bigger build.

Oil prices are selling off as one of the biggest players on the demand side, China, struggles while OPEC+ remains sidelined. At the beginning of October crude price had to endure a 6% drop in one trading day and this Tuesday it printed another blood red 5% devaluation of the benchmark Oil price. The decline accelerated when the overnight American Petroleum Institute (API) numbers revealed a big build in stockpile of 11.9 million barrels. 

Meanwhile, The US Dollar (USD) was trading stronger in a move to recover some of its incurred losses from last week. Add a peculiar rate hike from the Australian Central Bank on Tuesday morning, and traders were starting to second guess if the Fed would venture to hike still one more time. The US Dollar Index (DXY) stays afloat above 105, though it is looking for direction. 

Crude Oil (WTI) trades at $76.84 per barrel, and Brent Oil trades at $81.09 per barrel at the time of writing. 

Oil news and market movers

  • Earning season in both the US and Europe have been rather negative, which means that less demand for Oil could be at hand in the coming quarter.
  • The outlook for China’s demand for Oil is not looking great: refining margins are narrowing, stockpiles are building and air travel has made it back to pre-pandemic levels and demand. The recent disappointing data on China exports adds to more worries. 
  • The weekly American Petroleum Institute Crude Stockpile numbers revealed a build of 11.9 million barrels against the previous build of 1.374 million.  
  • Around 15:30 GMT, the Energy Information Agency (EIA) is due to print its recent stockpile numbers. The previous build was of 0.774 million barrels – no projections pencilled in. 

Oil Technical Analysis: Traders not buying into OPEC+ outlook

Oil prices are gearing up to only go one way: lower. That is at least under the current conditions. More and more negative signals from the demand side are screaming for a price correction in WTI and Brent Crude futures. Expect to see more declines at hand until OPEC+ issues more supply cuts to meet the faded demand. 

On the upside, $80 is the new resistance to watch out for. Should Crude be able to jump higher again, look for $84 (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 could come back into play.

On the downside, traders are bracing for trading in this psychological 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 likely cause Oil prices to sink below $70.

US Crude (Daily Chart)

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.

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