Oil unable to avoid losses ahead of Fed rate decision
- Oil (WTI) recovers only a touch in US Wednesday trading.
- The US Dollar starts to weaken in the US trading session, ahead of the US Fed interest rate decision.
- Goldman Sachs issues call for Brent crude above $100 within 12 months.
Oil traders are facing another cathalyst this Wednesday that could see oil prices shooting higher again, with the weekly numbers from the Energy Information Administration (EIA) this Wednesday. The overnight numbers from the American Petroleum Institute (API) showed a surprise drawdown, by a whopping 5.25 million barrels against the build of 1.174 million barrels last week. Supply cuts and stockpile drawdowns in the US combined with elevated demand are pushing both US WTI Crude and Brent prices higher.
The US Dollar (USD) is facing a moment of truth on Wednesday, with US Federal Reserve (Fed) Chairman Jerome Powell taking the stage. Although no hikes are expected, the stakes are very high. Not only did recent data show an uptick in economic activity and a strong labor market, but also inflationary pressures are starting to gain momentum partly due to increasing Oil prices..
Crude Oil (WTI) price trades at $89.73 per barrel and Brent Oil trades at $92.81 at the time of writing.
Oil news and market movers
- The Canadian Dollar is strengthening further as elevated oil prices are strengthening the currency.
- Aleksandr Valentinovitsj Novak, Deputy prime minister of Russia and former energy minister, mentions Russian oil production to hit 527 million tons this year.
- Goldman Sachs has pushed up its forecast for Brent Crude to $100 per barrel. The reasons for the upward revision are the unprecedented levels of global demand while OPEC+ is tightening supply.
- Saudi Arabia is expected to gradually unwind its 1 million barrel per day cut as of Q2 of 2024.
- The EIA is due to release its weekly stockpile numbers around 14:30 GMT on Wednesday. Expectations are for a drawdown of 2.2 million barrels after the build of 3.954 million barrels last week.
- The Fed will communicate its interest rate decision at 18:00 GMT. The US central bank is expected to keep rates on hold at the 5.25%-5.50% range. A statement will be available at the time of the rate communication explaining the decision. Fed Chair Jerome Powell press conference is due at 18:30 GMT.
- Recent numbers show that the Cushing stockage in Oklahoma saw a 42% drawdown in its stockpile for this quarter. This marks the biggest decline on record.
Oil Technical Analysis: Fed on the wires
Oil prices are taking a step back this Wednesday morning. Some traders are seeing some profit taking after the drawdown in the API numbers. There is likely more upside to come, so any dip in price action is expected to be bought as current market conditions and expectations remain favorable for Oil prices.
On the upside, the double top from October-November last year at $93.12 remains the level to beat. Although this looks very much in reach, markets have already priced in a lot of possible supply deficits and plenty of bullish outlooks. Should $93.12 be taken out, look for $97.11, the high of August 2022.
On the downside, a pivotal level is at $84.30 from August 10. In case this level does not hold, a substantial nosedive might occur. In such a case, Oil prices might drop to a key floor near $78.00.
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WTI US 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.
