Oil prices are paring back earlier gains after Oil prices surged near 6% since its opening price on Monday for this week. The moves came after more and more shipping companies called for the longer haul around Africa instead of venturing the Suez passage via the Red Sea. Meanwhile China has opened up a fresh can of diplomats who have urged several key Iran personal and key military people to keep a lid on the Houthi rebels and defuse the tension in the Red Sea.
Meanwhile, the US Dollar Index (DXY) defied friend, foe and gravity with a substantial surge in the DXY on Thursday. The move came on the back of a double-score with positive US Gross Domestic Product and Durable Goods orders. Some headwinds are emerging though with the Personal Consumption Expenditure (PCE) on the docket this Friday, and markets looking for a further decline in US inflation.
Crude Oil (WTI) trades at $76.70 per barrel, and Brent Oil trades at $81.45 per barrel at the time of writing.
China has urged Iran to control the Houthi rebels in order to put back a safe passage via the Suez Canal and the Red Sea in place. The move comes as no surprise with China having export issues, and now the longer haul around Africa adds to even more slowing export numbers from the Asian producer.
Oil traders are gearing up for more upticks in Oil as well, signalling that clearly something has broken in US Oil production. Recent Oil stockpile numbers showed substantial drawdowns, which means the US might need to be heading to markets to restock.
Next week all eyes will be on tanker-tracking data to be released, which will provide an insight into whether OPEC+ is complying with Oil production cuts.
This Friday the Oil markets will close off with the weekly Baker Hughes US Oil Rig Count at 18:00 GMT. Previous number was at 497, which was a second consecutive decline from the 501 peak at the start of 2024.
Oil prices could be seen surging higher from here after markets jumped on the element of China mingling in the Red Sea tension. Either way, the three-week-long-haul around Africa will see more demand coming in for fuel to say the least. Meanwhile next week, tanker info being released, could give a brief snapshot of how the supply side is looking, where any hints on complying or over complying to OPEC+ production cuts, might add to more upside into next week.
On the upside, $74 is out of the way and should act as support as of now. Although quite far off, $80 comes into the picture should tensions build further. Once $80 is broken, $84 is next on the topside.
As said in the paragraph above, $74 will now act as support for the nearterm on any sudden declines. The $67 level could still come into play as the next support to trade at, as it aligns with a triple bottom from June. Should that triple bottom break, a new low could be close at $64.35 – the low of May and March 2023 – as the last line of defence.
US WTI Crude Oil: Daily Chart
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 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.