Oil sinks over 1% as PPI confirms slowdown in CPI


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  • WTI Oil trades in the red after a volatile session on Tuesday.
  • The US Dollar is trading in another universe after a substantial devaluation. 
  • Oil upticks are still to be factored in, while the overall downside is the most probable outcome.

Oil prices are even deeper in the red as a perfect storm is brewing with a build crude stockpile according to the overnight numbers from the American Petroleum Institute (API), and this Wednesday's Producer Price Index (PPI) numbers confirming the earlier Consumer Price Index (CPI) numbers from Tuesday that a slowdown in demand is underway. The drop in US inflation numbers trembled the markets and saw equities and bond prices soaring substantially higher. Oil traders this Thursday will for sure be asking themselves if Crude prices cannot rally on the  Fed being done hiking, and Chinese economic data overnight pointing to a quicker-than-expected recovery, then what will? 

Meanwhile, the US Dollar (USD) has undergone its biggest intraday devaluation in over 52 weeks. The US Dollar Index (DXY) dropped by more than 1.5% intraday. With the markets now going all-in on the idea that the US Federal Reserve is done hiking, demand in the economy should pick up in the future. 

Crude Oil (WTI) trades at $77.16 per barrel, and Brent Oil trades at $81.36 per barrel at the time of writing. 

Oil news and market movers: PPI trips Crude prices

  • Later this Wednesday all eyes will be on San Francisco, where US President Joe Biden and Chinese President Xi Jinping are meeting.
  • The US Energy department confirmed it bought near 1.2 million barrels from two companies in order to refill the Strategic Petroleum Reserve. 
  • Overnight, the American Petroleum Institute (API) revealed a build of inventories by 1.3 million barrels last week. 
  • Around 15:30 GMT, the Energy Information Agency (EIA) is due to release its weekly EIA Crude Oil Stocks Change. Expectations are for a drawdown of 300,000, where last week saw a build of 740,000 barrels. Estimations vary from a build of 1,700,000 to a build of 13,500,000.

Oil Technical Analysis: Gridlock until OPEC meeting in November

Oil prices are stuck, with only having limited upside potential it seems. With the recent string of events in global markets, Oil prices by now should have been up near $80.00 or higher, traders would presume, though markets are preferring to focus on the current sluggish demand. Expect this gridlock to stay in place until OPEC+ meets at the end of November and might intervene to provide a response to this sluggish demand climate. 

On the upside, $80.00 is the resistance to watch out for. Should crude be able to jump higher again, look for $84.00 (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 $93.00 could come back into play.

On the downside, traders are seeing a soft floor forming near $74.00. That level is acting as the last line of defence before entering $70.00 and lower. Once in that area, markets might factor in the risk of a surprise intervention from OPEC+ to jack Oil prices back up again. 

US WTI Crude Oil: Daily Chart

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.

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