- Oil falls back below $80, breaking technical support.
- Sluggish demand comes back into play as rising bond yields risk the Fed delaying its initial rate cut.
- The US dollar index retreats further below 105.00 after the easing US GDP reading.
Oil prices are retreating further on Thursday as bond traders on Wednesday took all asset classes for a sharp move. This week, the US bond market has seen quite a few large bond allocations, with bond traders starting to look for higher yields. That rally pushed the US dollar (USD) rate gap wider against other currencies and sent stocks tumbling across the globe.
Meanwhile, the US Dollar Index (DXY) pared its Wednesday gains after a softer US Gross Domestic Product (GDP) reading. With a softer print from the previous reading, the idea changes that US performance is easing further. Under the hood, it became clear that the consumer is being hurt at current levels.
At the time of writing, crude oil (WTI) is trading at $78.32 and Brent crude at $82.64
Oil news and market movements: Milder summer
- Saudi Aramco may decide to cut its official selling price by 40 cents a barrel for July sales in Asia, according to a Bloomberg survey.
- Bloomberg Intelligence economist Ziad Daoud reports that more declines could be seen in oil prices with US markets seeing ample supply as demand weakens and risks of war in both the Middle East and Ukraine begin to recede. fade away.
- ConocoPhillips announced on Wednesday that it had agreed to buy Marathon Oil in a deal valued at $22.5 billion, Reuters reports.
- Some traders and banks are reporting the risk of more declines if markets begin to price in any rate cuts from the US Federal Reserve for 2024. A pick-up in oil demand is not expected until at least the first quarter of 2025, Reuters reports.
- The Energy Information Administration (EIA) will release its weekly crude inventory change numbers for the week on Thursday. The previous number was a build of 1.825 million barrels and a decrease of 1.9 million barrels is expected for this week.
Oil Technical Analysis: Markets are counting on that Fed tapering(s).
Oil prices are sensitive, to say the least. The recent recovery was built on assumptions that interest rates are easing and that the Fed will cut at least once this year, achieving a soft landing for the U.S. economy and keeping oil demand afloat, neither of which appears to be the case. valuable after the bond carnage on Wednesday, when bond traders said they had had enough of all these US debt issues and demanded higher yields before buying. With doubts about an initial cut for 2024, markets fear that customers will not be able to consume and spend as much as they are doing now, meaning that demand for oil will fall. This leads to a lower repricing under these conditions.
First, the Simple Moving Average (SMA) must be brought back under control. The 100-day SMA at $79.01 and the 200-day SMA at $79.57 are the first rising levels. Further, the 55-day Simple Moving Average (SMA) at $81.27 and the downtrend line at $81.75 are an area of ​​heavy resistance where any rally could stop. Once there, the path looks pretty open to go to $87.12.
On the downside, the $76.00 marker is coming back into focus with the $75.27 level playing a crucial role if traders still want to have an option to return to $80.00. If the key level of $75.27 breaks, expect to see a risky move down to $68, below $70.00.
US WTI Crude Oil: Daily Chart
WTI Oil FAQ
WTI crude oil is a type of crude oil sold in international markets. 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” due to 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 through the Cushing hub, which is considered the “Crossroads of the World’s Pipelines”. It is a benchmark for the oil market and the price of WTI is often quoted in the media.
Like all assets, supply and demand are the main drivers of the WTI oil price. As such, global growth can be a driver of demand growth and vice versa for weak global growth. Political instability, wars and sanctions can disrupt supply and affect prices. Decisions by OPEC, a group of major oil-producing nations, are another major price driver. The value of the US dollar affects the price of WTI crude oil, as oil is mainly traded in US dollars, so 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) influence the price of WTI oil. Changes in inventory reflect fluctuations in supply and demand. If the data shows a decline in inventories, this could indicate increased demand, driving up the price of oil. Higher inventories may reflect increased supply, driving down prices. The API report is published every Tuesday and the EIA the day after. Their results are usually similar, falling within 1% of each other 75% of the time. EIA data is considered more reliable, as it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 13 oil-producing countries that collectively set production quotas for member countries at meetings twice a year. Their decisions often affect WTI oil prices. When OPEC decides to cut quotas, it can tighten supply, driving up oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten additional non-OPEC members, the most prominent of which is Russia.
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