WTI slides back closer to mid-$58.00s; bearish potential seems intact
- WTI struggles to preserve modest intraday gains amid mixed fundamental cues.
- Hopes for a US-China trade deal and a weaker USD lend support to the commodity.
- Oversupply concerns cap gains for the black liquid and warrants caution for bulls.
West Texas Intermediate (WTI) US Crude Oil prices struggles to capitalize on its modest intraday move up and drops to a fresh daily low, close to mid-$58.00s during the first half of the European session on Friday. The commodity, for now, seems to have stalled its recovery from from the vicinity of the $56.00 mark, or a three-week low touched on Thursday.
Hopes for the potential de-escalation of a bitter trade war between the US and China – the world's two largest economies – help ease fuel demand concerns. Apart from this, US President Donald Trump's threat to impose secondary sanctions against any country buying Iranian oil turns out to be a key factor underpinning the black liquid. Furthermore, a modest USD pullback from a multi-week high further lends support to Crude Oil prices, though expectations of more OPEC+ supply coming to the market cap the upside.
From a technical perspective, the commodity last week faced rejection near a horizontal support breakpoint, now turned a hurdle near the $65.00 level. The subsequent downfall and negative oscillators on the daily chart favor bearish traders, suggesting that the path of least resistance for Crude Oil prices is to the downside. That said, repeated failures to find acceptance below the $58.00 mark warrant some caution before placing fresh bearish bets around the commodity and positioning for any further depreciation.
However, a convincing break and daily close below the aforementioned handle could drag Crude Oil prices back below the $57.00 round figure, towards retesting the overnight swing low near the $56.60 area. Some follow-through will reaffirm the near-term negative bias and expose a multi-year trough – levels below the $55.00 psychological mark touched in April.
On the flip side, momentum beyond the daily swing high, around the $59.55 region, could trigger a short-covering rally and allow Crude Oil prices to reclaim the $60.00 psychological mark. The momentum could extend further, though it runs the risk of fizzling out rather quickly near the $60.80-$60.85 region. This is closely followed by the $61.00 round figure, which if cleared should pave the way for a move towards the $62.00 mark en route to the $62.50 area and the $63.00 round figure.
WTI Oil FAQs
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.
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.
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.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 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
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
