Crude Oil flattens as OPEC+ decision on production normalization looms
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Oil prices are broadly flat on the day, retreating further away from $70, as traders brace for OPEC+ decision on supply cuts.
OPEC+ needs to overdeliver on market expectations in order to prevent Oil prices from dropping further.
The US Dollar Index remains stuck in a tight range ahead of Friday’s US Nonfarm payrolls release.
Crude Oil is consolidating at around $68.50 on Thursday after Wednesday’s losses ahead of the decision from OPEC+ meeting that is taking place at the time of writing. OPEC+ members are convening online to discuss a delay of the production normalization amidst sluggish demand and oversupply coming from non-OPEC+ countries. Market expectations are for at least a delay of three months, so OPEC+ will need to overdeliver in order to get that promised floor in Oil prices.
The US Dollar Index (DXY) – which measures the performance of the US Dollar (USD) against a basket of currencies – is softening in very calm markets as the dust settles on the French political uncertainty after its government fell on Wednesday. Traders are sitting on their hands ahead of Friday’s Nonfarm Payrolls release, the last one of the year. Overnight, Fed Chairman Jerome Powell kept his cards close to his chest on the odds for a December rate cut, while commenting that the US debt is becoming unsustainable and needs to be addressed.
At the time of writing, Crude Oil (WTI) trades at $68.50 and Brent Crude at $72.30.
Oil news and market movers: OPEC+ talk of the town
Reuters reports that the OPEC+ meeting is expected to begin at 11:00 GMT.
The overnight Crude stockpile change numbers from the Energy Information Administration (EIA) were completely different from the numbers seen earlier this week from the American Petroleum Institute (API). Whereas the API saw a surprise build of 1.232 million barrels, the EIA number came in as a surprise drawdown of 5.073 million barrels.
OPEC+ is likely to extend their oil output cuts – originally scheduled to start in January – by at least three months, Reuters said in a Thursday report, citing OPEC+ sources.
Oil Technical Analysis: Are expectations too high?
Crude Oil price might be undergoing a gruesome disappointment if OPEC+ is unable to overdeliver on market expectations. With several analysts penciling in a delay between three to six months, OPEC+ is forced to at least deliver a 6 months production normalization delay. Preferably even longer, with anything less than 6 months set to push Oil prices further down ahead of President-elect Donald Trump’s presidency.
With the leg lower this week, the 55-day Simple Moving Average (SMA) at $70.17 triggered a firm rejection on Wednesday. Should the OPEC+ communication be able to initiate a spike, look for $71.46 with the 100-day SMA at $71.65 as thick resistance. In case Oil traders can plough through that level, $75.27 is up next on the topside as pivotal level.
On the other side, traders see $67.12 – a level that held the price in May and June 2023 – rapidly nearing. In case that breaks, the 2024 year-to-date low emerges at $64.75, followed by $64.38, the low from 2023 will quickly be tested for more downside.
US WTI Crude Oil: Daily Chart
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.
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* The content presented above, whether from a third party or not, is considered as general advice only. This article should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments.
