U.S. West Texas Intermediate crude futures were trading higher on Friday on reports that OPEC and its allies will ignore President Biden’s request to increase supply at next week’s production meeting. A weaker US dollar and stronger risk sentiment are also supportive for the week close.
Crude oil traders have been reacting positively to hopes that US monetary tightening will not be as brutal as initially expected after disappointing economic growth figures were released on Thursday.
Another big event driving the price action is that front-month Brent futures are selling at an increasing premium to the deferred months in a market structure known as a lag, which indicates tight current supply.
This is caused by the difficult supply situation in Europe due to sanctions against Russia and its slowdown in supply to a key gas pipeline in Germany.
Possibilities of increasing OPEC+ supply Wed
The next price hike could come next week after the meeting of the Organization of the Petroleum Exporting Countries (OPEC) and its Russia-led allies, collectively known as OPEC+, on August 3.
OPEC+ sources told Reuters the group would consider keeping oil output unchanged for September, with two OPEC+ sources saying a modest increase would be discussed.
A decision not to increase production would slow US efforts to lower domestic gasoline prices after US President Joe Biden visited Saudi Arabia this month in hopes of reaching a deal…
U.S. West Texas Intermediate crude futures were trading higher on Friday on reports that OPEC and its allies will ignore President Biden’s request to increase supply at next week’s production meeting. A weaker US dollar and stronger risk sentiment are also supportive for the week close.
Crude oil traders have been reacting positively to hopes that US monetary tightening will not be as brutal as initially expected after disappointing economic growth figures were released on Thursday.
Another big event driving the price action is that front-month Brent futures are selling at an increasing premium to the deferred months in a market structure known as a lag, which indicates tight current supply.
This is caused by the difficult supply situation in Europe due to sanctions against Russia and its slowdown in supply to a key gas pipeline in Germany.
Possibilities of increasing OPEC+ supply Wed
The next price hike could come next week after the meeting of the Organization of the Petroleum Exporting Countries (OPEC) and its Russia-led allies, collectively known as OPEC+, on August 3.
OPEC+ sources told Reuters the group would consider keeping oil output unchanged for September, with two OPEC+ sources saying a modest increase would be discussed.
A decision not to increase production would slow US efforts to reduce domestic gasoline prices after US President Joe Biden visited Saudi Arabia this month in hopes of reaching a deal to open the taps
The general consensus among analysts is that it would be difficult for OPEC+ to boost supply, given that many producers are already struggling to meet production quotas.
Weak GDP Pressures US Dollar
The U.S. dollar was trading lower against a basket of major currencies early Friday as traders continued to react to data showing the U.S. economy contracted again in the second quarter, fueling the ‘speculation that the Federal Reserve will not raise rates as aggressively as previously expected.
On the economic front, data showed Thursday that gross domestic product fell at an annualized rate of 0.9 percent in the second quarter. Consumer spending grew at its slowest pace in two years and business spending contracted, raising the risk that the economy was on the brink of a recession. Economists polled by Reuters had forecast GDP to rise at a rate of 0.5%.
A weaker greenback tends to increase foreign demand for dollar-denominated crude oil.
Risk sentiment underpins prices
Crude oil is getting a jolt from improved risk sentiment as recession fears ease after upbeat U.S. earnings and less dovish talk from the Fed on future rate hikes.
The U.S. Federal Reserve raised its benchmark overnight interest rate by 75 basis points on Wednesday, in line with expectations, to combat strong inflation, while Fed Chairman Powell added that the central bank will make decisions on rate hikes meeting by meeting. base
In addition, the Fed also said that the US economy is not in recession, as “there are too many areas of the economy that are doing too well.”
Powell’s comments, suggesting a slower path forward, weighed on the US dollar, boosting demand for dollar-denominated crude.
Falling inventories, rising exports provide added impetus
Traders are still reacting positively to Wednesday’s bullish government inventories report that revealed U.S. crude exports rose to a record high last week. The move contributed to another fall in inventories and was mainly driven by overseas demand due to the steep discount of US crude compared to international favorite Brent.
Crude stockpiles fell 4.5 million barrels to 422.1 million in the week ended July 22, the US Energy Information Administration said on Wednesday, compared with expectations for a decline of 1 million barrels. The drop was largely the result of a surge in crude oil exports to a record 4.5 million barrels per day over the past week.
U.S. crude output also rebounded to 12.1 million bpd after two weeks of declines, rising 200,000 bpd in its biggest increase since December.
U.S. gasoline stocks also fell by 3.3 million barrels for the week, and distillate stocks, which include diesel and heating oil, fell by 784,000 barrels.
Weekly Technical Analysis
September WTI Crude Oil Week
Analysis of trend indicators
The main trend is up according to the weekly swing chart. However, the momentum is trending lower following confirmation of the closing price reversal from the week ended June 17.
The minor trend is down. It changed to the downside three weeks ago when sellers pulled out the minor bottom at $99.66. This confirmed the change in momentum. The new minor top is $111.14. A trade through this price will reverse the minor uptrend and change the momentum to the upside.
Retracement Level Analysis
The intermediate range is $60.99 to $118.08. Its retracement zone from $89.54 to $82.80 is supportive. This area stopped selling at $88.23 on July 14.
The main range is also the contract range from $35.00 to $118.08. Its retracement zone from $76.54 to $66.74 is the main area that controls the market’s long-term direction.
On the upside, the minor range is $111.14 to $88.23. Its 50% level or pivot is potential resistance at $99.69. The short-term range is $118.08 to $88.23. Its retracement zone between $103.16 and $106.68 is the most important resistance area.
Weekly technical forecast
The direction of the September WTI crude market on the weekend of August 5 will be determined by the reaction of traders to the minor 50% level at $99.69.
Bullish scenario
A sustained move above $99.69 will indicate the presence of buyers. If this move creates enough upside momentum, look for a rally to the short-term retracement zone between $103.16 and $106.68.
The key area holding back a change in momentum and a resumption of the uptrend is $103.16 to $106.68.
Bearish scenario
A sustained move below $99.69 will indicate the presence of sellers. Taking out the two-week low at $88.23 and the lower low at $85.37 will indicate that selling pressure is getting stronger. This could lead to a test of the Fibonacci level at $82.80.
A failure to hold $82.80 will put the market in a weak position. This could extend the selloff to the main retracement zone from $76.54 to $66.74. This is the last potential support before the main bottom at $60.99. A trade through this level will change the main trend down.
Short-term prospects
Fundamentally, the market could continue to gain support amid speculation that exports could continue to rise, thanks to a wide spread between US and international crude benchmarks, especially as Europe has cut imports from its main supplier, Russia, following of the invasion of Moscow. of Ukraine and subsequent sanctions against that nation. Some analysts also think we could see more than 5 million per day. In other words, we may not have seen peak oil globally.
Currently, the arbitrage or spread between US Brent crude oil futures and West Texas Intermediate has widened to more than $9 a barrel.
“International refineries will go to the United States to load on US crude as long as the arb is wide enough to cover the cost of transportation,” said Robert Yawger, executive director of energy futures at Mizuho.
Technically, despite the strengthening fundamentals, traders still face a wall of resistance at $99.69-$106.68. So any demonstration is likely to be a laborious event.